Cost
Cost
Costs of
of Production
Production
What factors affect costs
What do we need to
consider in costs
Wherever production takes place,
costs follow. One has to make
payments for all factors of
production, i.e. incur certain costs
SUNK COSTS
Time period and costs
Short Run costs
• Total fixed cost (TFC)– cost which firm
incurs for fixed inputs, whether there is
output or not. eg. Rent
• Total variable cost (TVC) –cost incurred by
firm for variable input eg raw material
TOTAL COST = TFC + TVC
• Brain drain
• Outsourcing trends – bpo, kpo, lpo
Break even analysis
• The break even point is that
point of activity (sales volume)
where total revenue and total
expenses are equal. It is point of
zero profit.
1. Breakeven point in units
2. Breakeven point in sales
3. Breakeven point in percentage
Break-Even Analysis
• At the Break-even point TR =
TC, but
TR TVC TFC
or
P(Q) AVC (Q) TFC
TFC
therefore: QBEP
P AVC
(P - AVC) is known as the unit
contribution margin.
[1-(AVC/P)] is known as the
% b = TFC * 100
( P- AVC) * Q (cap)