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PHM:Sem 1
Sub ~ Managerial Economics Topic~ Cost Concepts Presented By:Group No:5. 1225-Harish.K.V. 1226-Kedar Patankar. 1227-Kishor Patil. 1228-Krupa Kelkar. Click to edit Master subtitle style 1229-Y.Lakshman. 1230-M.Ravi Babu. Dt:23-10-12
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INTRODUCTION
Cost is normally considered from producers point of view . In producing a commodity , a firm has to employ an aggregate of various factors such as LAND. LABOUR. CAPITAL. ENTREPRENEURSHIP.
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REAL COST
Real cost of production refers to the physical quantities of products used in producing a commodity. It refers to the exertion of labour ,sacrifice involved in the abstinence from present consumption by the savers to supply capital , and social effects of pollution, congestion, and environmental distortions.
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OPPORTUNITY COST
Opportunity cost is the cost of a good or service as measured by the alternative uses that are foregone by producing the good or service.
If 15 bicycles could be produced with the materials used to produce an automobile, the opportunity cost of the automobile is 15 bicycles.
The price of a good or service often may reflect its opportunity cost.
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MONEY COST
Money Cost is the monetary expenditure on inputs of various kinds raw material , labour etc required for output. It is the payment made for the factors in terms of money. EXPLICIT IMPLICIT
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EXPLICIT COST
Explicit cost refers to the actual money outlay of a firm to buy or hire the productive resources it needs in the process of production. Costs of raw material, Wages and salaries, Power charges, Rent of factory , interest payments of capital invested, insurance , taxes like property tax, duties , marketing , transport.
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IMPLICIT COST
Implicit costs are imputed payments which are not directly or actually paid out by the firm as no contractual disbursement is fixed for them. Implicit cost are not directly incurred by the firm through market transaction.
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Types of Cost
Total fixed costs (TFC) Average fixed costs (AFC) Total variable costs (TVC) Average variable cost (AVC) Total cost (TC) Average total cost (ATC) Click to edit Master subtitle style Marginal cost (MC)
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The quantity of all necessary production inputs can be changed. Expand or acquire additional inputs.
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Fixed Costs(FC)
Fixed Cost denotes the costs which do not vary with the level of production. FC is independent of output. Result from owning a fixed input or resource. Incurred even if the resource isnt used. Dont change as the level of production changes (in the short run). Exist only in the short run. Click to edit Master subtitle style The only way to avoid fixed costs is to sell the item.
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All costs associated with the fixed input. Average fixed cost per unit of output: AFC = TFC /Output
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Variable Costs(VC)
Variable Costs is the rest of total cost, the part that varies as you produce more or less. It depends on Output. Variable costs will increase as production increases. Total Variable cost (TVC) is the summation of the individual variable costs. VC = (the quantity of the input) X (the inputs price).
In fact, all costs are considered to be variable costs in the long run.
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Fertilizer is a variable cost until it has been purchased and applied. Labor and cash rent contracts have to be considered fixed costs during the duration of the contract. Irrigation water is generally variable, but can have a fixed component. Eg: Increase of output with labour. All costs associated with the variable input. Average variable cost- cost per unit of output:
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Total costs(TC)
The sum of total fixed costs and total variable costs. TC = TFC + TVC
Marginal Costs
The additional cost incurred from producing an additional unit of output:
MC = TC Output
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EXAMPLE
NO OF UNITS 0 1 2 3 4 5 TFC 15 15 15 15 15 15 TVC 5 9 12 16 25 TC 15 20 24 27 31 40 AFC 15 7.5 5 3.75 3 AVC 0 5 4.5 4 4 5 AC 20 12 9 7.75 8 MC 5 4 3 4 9
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MC is generally
ATC and AVC decline at increasing. first, reach a minimum, then increase at higher MC crosses ATC and AVC at levels of output. their minimum point. The difference between ATC and AVC is equal to AFC.
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Conclusion
To understand meaning of different costing terms. To understand different costing methods. To understand meaning of cost sheet & techniques. Cost concept is importance for decision making. Such as two importance decisions made by managers A)Whether to produce or not. B)How much to produce. Click to edit Master subtitle style
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THANK YOU
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