A PRESENTATION ON COST CONCEPT

INTRODUCTION

It refers to something that must be sacrificed to obtain a product. In economics, cost of production refers to all payments or expenditure necessary to obtain the factor of production of land, labor, capital &management required to produce a commodity.

Element of cost

(1). Purchase raw material.

(2). Installation of plant& machinery. (3).wage of labor. (4).rent of building. (5). Interest of capital. (6). Wear & tear of machinery (7). Advertisement expense (8). Insurance charge (9). Payment of taxes

CLASSIFICATION OF COST :(1).Production cost :It includes material cost, rent cost, wage cost,interst cost and normal profit of the organization

(2).selling cost:transportation,marketing&selling cost.

(3).sundry cost
insurance charge,payment of taxes.

 Concept of economic cost: Opportunity cost

it is define as the value of the resource in its next

best use . It includes both implicit and explicit cost .

Explicit cost: it is called as money cost or accounting cost out

of pocket cost or expenditure cost . It refers to those expenses which are actually paid by the firm to the outsiders.

implicit cost:belongs to the owner himself.

Earning of this employed resources which

 Real cost: Real cost are the pains ,effort ,service and sacrifice in

conveniences by labour to produce a commodity .

Accounting cost: It based upon accounting record in the book of

accounts, when they are actually incurred.

Economic cost: It consist of both explicit &implicit cost. in other

word it includes both record and unrecorded cost.

Replacement cost: Current price or cost of buying overplaying any

input.

 Concept of cost in short run : Total fixed cost: It occurs only in the short run.

It is independent of output .

 Total variable cost: A cost which fluctuate in total direct proportion to

volume of output. In other word with the change in output variable cost change .

TC (000 Rs. per year)

Short-Run Total Cost Curve

 Total cost: It is some of fixed & variable cost incurred at each level of

output. o Total cost of production.

TC=TFC+TVC

 Average cost: The average cost is the cost that incurred per unit of

good produced .

A.C=TC/Q
Average fixed cost: It refer to fixed cost per unit of output .

AFC=total fixed cost/output

 Average variable cost: It refers to variable expenses per unit of output.

AVC=TVC/Q

 Average total cost: It refers to cost (both fixed & variable)per unit

output.

ATC=TOTAL COST/OUTPUT

 Long run average cost curve: It is alsoUshape but flatter that the short run curve. The long run average cost curve is envelope of the

short run average cost curve.

 Marginal cost: It is an increase in total cost that result from a one

unit increase in output. It is defined as the cost that results from a one unit change in production rate.

 Long run marginal cost curve: It like long run average cost is a shaped. The marginal cost falls sharply in the beginning

,reaches a minimum & then rises sharply.

 Average variable cost & marginal cost: .

Conclusion:From this presentation we conclude that purely cost concept is very important both for the society and market.

Thank You