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. OUT
PUT
TOTAL
FIXED
COST
TOTAL
VARIA
BLE
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