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# Different types of costs PPT ON COST ACCOUNTANCY MBA

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Different types of costs PPT ON COST ACCOUNTANCY MBA

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### Different types of costs PPT ON COST ACCOUNTANCY MBA

1. 1. Different types of COST Presented by :BABASAB PATIL 4/10/2013 Babasabpatilfreepptmba.com
2. 2. Different types of COST •Fixed cost &Variable cost •Incremental cost & Sunk cost •Real cost & Opportunity cost •Explicit cost & Implicit cost •Total cost, Average cost & Marginal cost 4/10/2013 Babasabpatilfreepptmba.com
3. 3. Fixed cost &Variable cost Fixed cost :Fixed cost are those cost That are incurred as a result of the use of fixed factor inputs. They remain fixed at any level of output in the short run. E.g.: payments of rents for building Insurance premiums Depreciation & maintenance allowance. Variable cost: Variable cost are those cost that are incurred by the firm as a result of the use of variable factor inputs. They are dependent of the level of input. E.g.: prices of raw material Fuel and power charges. 4/10/2013 Babasabpatilfreepptmba.com
4. 4. Incremental cost & Sunk cost Incremental cost :It can be defined as the cost of change in the level of nature of activity. The amount by which the total cost increases when output is expanded by one unit. It can be also be calculated by dividing the change in total cost by one unit change in output. Sunk cost: refer to those costs which are not altered or changed with a change in the level of nature of activity. This is the cost which cant be recover that is called as sunk cost. 4/10/2013 Babasabpatilfreepptmba.com
5. 5. Total cost, Average cost & Marginal cost Total cost:Total cost is the aggregate of expenditure incurred by the firm in producing given level of output. Total cost is measured in relation to the production function by multiplying factor prices with their quantities. total cost=total fixed cost + total variable cost Average cost :Average cost of production is the total cost of production divided by units produced. average cost=total cost of production/number of units produced 4/10/2013 Babasabpatilfreepptmba.com
6. 6. Marginal cost : Marginal cost is the cost of producing an extra unit of output. The marginal cost is also per unit cost of production. It is the addition made to the total cost by producing one more unit of output. marginal cost = total cost(n) –total cost (n-1) 4/10/2013 Babasabpatilfreepptmba.com
7. 7. REAL COST: The term real cost of production refers to the physical quantities of various factors used in producing a commodity. Ex: real cost of a table is composed of a carpenter’s labor, two cubic feet of wood, a dozen of nails, half a bottle of varnish etc OPPORTUNITY COST: The sacrifice or loss of alternative use of a given resource is termed as opportunity cost. Thus the opportunity cost is measured in terms of the forgone benefits from the next best alternative use of a given resource. Ex: The opportunity cost of managing once own business the salary that he could earn in other occupations. 4/10/2013 Babasabpatilfreepptmba.com
8. 8. EXPLICIT COSTS: Explicit costs are direct contractual monetary payments incurred through market transactions. Ex: wages and salaries, power charges. IMPLICIT COSTS: Implicit costs are the opportunity costs of the use of factors which a firm does not buy or hire. Ex: wages of labor rendered by the entrepreneur himself, interest on capital supplied by him. 4/10/2013 Babasabpatilfreepptmba.com
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