Cost Concepts Presentation
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Cost Concepts Presentation Transcript:
1.Cost concepts
2.Meaning and importance
Cost of production influences market supply of a commodity.
Basic factor underlying is the ability and willingness of firm to supply a product in market is its Cost of production .
Firms profit depends on Cost of production and price of products.
Therefore cost concepts are important
3.Types of cost
Accounting and oppurtunity cost
Explicit and implicit cost
Avoidable and unavoidable cost
Increment and sunk costs
Common and traceable cost
Historical and replacement cost
Fixed and variable cost
4.Accounting and Opportunity Cost
These are the costs of production of a firm.
These costs are paid for by the producer and are also known as entrepreneur's cost
These costs are entered in the books of accounts.
Ex-wages to labour,interest on borrowed capital, replacement and repairing charges ,depreciation of capital goods etc.
Productive resources are ltd,the production of one commodity can only be at the cost of another.The commodity that is sacrificed is the oppurtunity cost of the commodity produced.
Thus oppurtunity cost of a product is,the oppurtunity lost of not being able to produce some other product.
Ex-100 tons of plastic can either fulfill 100 household orders or 100 orders of childrens toys.
5.Accounting and Opportunity Cost
These are the costs of production of a firm.
These costs are paid for by the producer and are also known as entrepreneur's cost
These costs are entered in the books of accounts.
Ex-wages to labour,interest on borrowed capital, replacement and repairing charges ,depreciation of capital goods etc.
Productive resources are ltd,the production of one commodity can only be at the cost of another.The commodity that is sacrificed is the oppurtunity cost of the commodity produced.
Thus oppurtunity cost of a product is,the oppurtunity lost of not being able to produce some other product.
Ex-100 tons of plastic can either fulfill 100 household orders or 100 orders of childrens toys.
6.Explicit and implicit cost
The money payment ,which a firm makes to outsiders who supply labour services ,raw materials, transport ,electricity etc are called explicit costs.
These are out-of –pocket costs.
Ex-salaries and wages, price of raw materials, fixed or overhead costs etc
The costs of “self-owned” resources which are employed by the firm are called implicit costs.
These are non-expenditure costs.
Ex-salary of proprietor, interest on proprietors investment, rent on own land used by firm etc.
7.Avoidable and unavoidable cost
Costs that can be avoided due to contraction of the firm are called avoidable costs
Ex-A firm decides to close down
Rent,wages,salary,electricity charges
Costs that cannot be avoided due to contraction of the firm are called avoidable costs
However in this case, salesman who sell cannot be avoided.
8.Increment and sunk costs
Costs which increase because of expansion of firm are called increment costs
Example-
Assume a firm purchases a machine. Costs that needs to be borne whether there is expansion or not is called sunk costs.
9.Common and traceable cost
Some costs are common to all products of multiple product firm. These are common costs.
Example-Consider a press
Some costs are traceable to certain products of multiple product firm. These are traceable costs.
10.Historical and replacement cost
Cost of a capital asset, when it was initially purchased,say,1994 is historical cost of asset.
Cost of the asset when it is to be replaced say in 2004,is the replacement cost
Download
Cost Concepts Presentation Transcript:
1.Cost concepts
2.Meaning and importance
Cost of production influences market supply of a commodity.
Basic factor underlying is the ability and willingness of firm to supply a product in market is its Cost of production .
Firms profit depends on Cost of production and price of products.
Therefore cost concepts are important
3.Types of cost
Accounting and oppurtunity cost
Explicit and implicit cost
Avoidable and unavoidable cost
Increment and sunk costs
Common and traceable cost
Historical and replacement cost
Fixed and variable cost
4.Accounting and Opportunity Cost
These are the costs of production of a firm.
These costs are paid for by the producer and are also known as entrepreneur's cost
These costs are entered in the books of accounts.
Ex-wages to labour,interest on borrowed capital, replacement and repairing charges ,depreciation of capital goods etc.
Productive resources are ltd,the production of one commodity can only be at the cost of another.The commodity that is sacrificed is the oppurtunity cost of the commodity produced.
Thus oppurtunity cost of a product is,the oppurtunity lost of not being able to produce some other product.
Ex-100 tons of plastic can either fulfill 100 household orders or 100 orders of childrens toys.
5.Accounting and Opportunity Cost
These are the costs of production of a firm.
These costs are paid for by the producer and are also known as entrepreneur's cost
These costs are entered in the books of accounts.
Ex-wages to labour,interest on borrowed capital, replacement and repairing charges ,depreciation of capital goods etc.
Productive resources are ltd,the production of one commodity can only be at the cost of another.The commodity that is sacrificed is the oppurtunity cost of the commodity produced.
Thus oppurtunity cost of a product is,the oppurtunity lost of not being able to produce some other product.
Ex-100 tons of plastic can either fulfill 100 household orders or 100 orders of childrens toys.
6.Explicit and implicit cost
The money payment ,which a firm makes to outsiders who supply labour services ,raw materials, transport ,electricity etc are called explicit costs.
These are out-of –pocket costs.
Ex-salaries and wages, price of raw materials, fixed or overhead costs etc
The costs of “self-owned” resources which are employed by the firm are called implicit costs.
These are non-expenditure costs.
Ex-salary of proprietor, interest on proprietors investment, rent on own land used by firm etc.
7.Avoidable and unavoidable cost
Costs that can be avoided due to contraction of the firm are called avoidable costs
Ex-A firm decides to close down
Rent,wages,salary,electricity charges
Costs that cannot be avoided due to contraction of the firm are called avoidable costs
However in this case, salesman who sell cannot be avoided.
8.Increment and sunk costs
Costs which increase because of expansion of firm are called increment costs
Example-
Assume a firm purchases a machine. Costs that needs to be borne whether there is expansion or not is called sunk costs.
9.Common and traceable cost
Some costs are common to all products of multiple product firm. These are common costs.
Example-Consider a press
Some costs are traceable to certain products of multiple product firm. These are traceable costs.
10.Historical and replacement cost
Cost of a capital asset, when it was initially purchased,say,1994 is historical cost of asset.
Cost of the asset when it is to be replaced say in 2004,is the replacement cost
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