In typical business organization cost is generally considered the domain of accounting department.

For internal analysis and decision making, the definition of cost is based on concept of relevancy. The cost affected by management decision is called Relevant Cost

Historical Cost (Cost incurred in past) Incremental Cost (Cost associated with decision) Marginal Cost (Cost of producing additional unit) Opportunity Cost (Choosing the best alternative) Sunk Cost (Cost incurred in past but not effected by current decision)

Input/Lab or (L)
0 1 2 3 4 5 6 7

Total Product(Q)
0 8 18 29 39 47 52 56

Marginal Product(MP)
-8 10 11 10 8 5 4

Total Variable Cost(TVC) (L*500)

--500 1000 1500 2000 2500 3000 3500

Marginal Cost ( TVC/ Q)

0 62.5 50 45.5 50 62.5 100 125

The firm employs two inputs, labor and capital The firm operates in a short-run period. The firm uses the inputs to make a single product. The firms uses the input to make single product The firms underlying short run production is affected by the law of diminishing returns

Quantity : amount of out put the firm produce in short run. Total fixed cost : the total cost of using the fixed input. Total variable cost : the total cost of using the variable input l Total cost :The cost of using all the firms inputs Average Fixed cost: The avg fixed cost of using the fixed input K

Average Variable Cost: The avg or perunit cost of using the variable L. Average Total Cost: The avg or per-unit cost of using all the firms inputs. Marginal Cost: The change in a firms total cost resulting from a unit change in output

TC=TFC+TVC AC=AFC+AVC or TC/Q MC= TC/Q or TVC/Q AFC=TFC/Q AVC=TVC/Q

Scale of Production A B

Total Product 1 2

Long Run Total Cost 5 9

Long Run Marginal Cost 5 4

C
D E F

3
4 5 6

12
15 20 26

3
3 5 6

Often viewed as involving the

contracting out of a business function - commonly one previously performed in-house - to an external provider

Types of out sourcing

BUSINESS PROCESS OUTSOURCING KNOWLEDGE PROCESS OUTSOURCING TECHNOLOGY SERVICES OUTSOURCING

Cost saving factor

Critical Mass of Skilled Technical

Professionals Good Telecommunication channels Language and Culture Telecommunications Infrastructure Political Stability and Diversification

THANK