Production of Cost

Production of Cost

1. Production of Cost Presentation Topic

2. Group Name: Sunflower Group Member: 152-15-6223 152-15-6226 152-15-6232 152-15-6235 152-15-6236 152-15-6237 152-15-6243 152-15-6244

3. Definition of Cost & Production cost Cost : An amount that has to be paid or given up in order to get something. Production cost : A cost incurred by a business when manufacturing a good or producing a service .

4. Type of Cost Cost is basically four types Fixed cost Variable cost Average cost Marginal cost

5. Discuss Types of costs Fixed cost : Fixed costs are expenses that do not change in proportion to the activity of a business, within the relevant period or scale of production. For example, a retailer must pay rent and utility bills irrespective of sales. Variable Cost : A corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases.

6. OUTPUT TOTAL FIXED COST TOTAL VARIABLE COST TOTAL COST 1 100 50 150 2 100 80 180 3 100 100 200 4 100 110 210 5 100 150 250 6 100 220 320 7 100 350 450 8 100 640 740

7. Average cost :  Average cost  is equal to total cost divided by the number of goods produced. OUTPUT TOTAL FIXED COST (£000) AVERAGE FIXED COST (£000) 1 100 100 2 100 50 3 100 33.3 4 100 25 5 100 20 6 100 16.6 7 100 14.3 8 100 12.5

8. Marginal cost : Marginal cost:  is the change in total cost that arises when the quantity produced changes by one unit. In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit .

9. OUTPUT TOTAL COST MARGINAL COST 1 150   2 180 30 3 200 20 4 210 10 5 250 40 6 320 70 7 450 130 8 740 290

10. Cost estimation When developing a business plan for a new or existing company, product, or project, planners typically make cost estimates in order to assess whether revenues/benefits will cover costs (see cost-benefit analysis). This is done in both business and government. Costs are often underestimated, resulting in cost overrun during execution.

11. Elements of Production Cost The key elements included in the production costs are as follows : Purchase of raw machinery Installation of plant and machinery Wages of labor Building rent Interest on capital Wear and tear of building and machinery Advertisement expenses Payment of taxes Insurance charges

12. Relationship between different curves Total Cost = Fixed Costs (FC) + Variable Costs (VC) Marginal Cost (MC) = dC / dQ ; [ MC equals the slope of the total cost function and of the variable cost function ] Average Total Cost (ATC) = Total Cost/Q Average Fixed Cost (AFC) = FC/Q Average Variable Cost (AVC) = VC/Q.

13. Formula for computing Production Costs The general formula used for computing production cost is: Production cost per item = Fixed Cost (FC) + Variable cost (VC) / No. of units produced

14. Summary of Costs and Profits Economic Profits Implicit costs (including a normal profit) Explicit Costs Accounting costs (explicit costs only) Accounting Profits Economic (Opportunity) Costs Total Revenue Profits to an Economist Profits to an Accountant

15. The End Thank You