Fixing selling prices Best inventory control Helps in ascertainment of cost Need for control of cost Useful in decision making ( Make or buy, retain or replace, continue or shut down, accept or order etc..) Fixing selling prices Best inventory control Cost reduction Measurement of efficiency Preparation of budgets Identification of unprofitable activities Identification of material losses Identification of idle time, idle capacity Improve the productivity Cost comparison Helps in ascertainment of cost Need for control of cost Useful in decision making ( Make or buy, retain or replace, continue or shut down, accept or order etc..) Fixing selling prices Best inventory control Cost reduction Measurement of efficiency Preparation of budgets Identification of unprofitable activities Identification of material losses Identification of idle time, idle capacity Improve the productivity Cost comparison Helps in ascertainment of cost Need for control of cost Useful in decision making ( Make or buy, retain or replace, continue or shut down, accept or order etc..) Fixing selling prices Best inventory control Cost reduction Measurement of efficiency Preparation of budgets Identification of unprofitable activities Identification of material losses Identification of idle time, idle capacity Improve the productivity Cost comparison Helps in ascertainment of cost Need for control of cost Useful in decision making ( Make or buy, retain or replace, continue or shut down, accept or order etc..) Fixing selling prices Best inventory control Cost reduction Measurement of efficiency Preparation of budgets Identification of unprofitable activities Identification of material losses Identification of idle time, idle capacity Improve the productivity Cost comparison Helps in ascertainment of cost Need for control of cost Useful in decision making ( Make or buy, retain or replace, continue or shut down, accept or order etc..) Fixing selling prices Best inventory control Cost reduction Measurement of efficiency Preparation of budgets Identification of unprofitable activities Identification of material losses Identification of idle time, idle capacity Improve the productivity Cost comparison Helps in ascertainment of cost Need for control of cost Useful in decision making ( Make or buy, retain or replace, continue or shut down, accept or order etc..) Fixing selling prices Best inventory control Cost reduction Measurement of efficiency Preparation of budgets Identification of unprofitable activities Identification of material losses Identification of idle time, idle capacity Improve the productivity Cost comparison Helps in ascertainment of cost Need for control of cost Useful in decision making ( Make or buy, retain or replace, continue or shut down, accept or order etc..) Fixing selling prices Best inventory control Cost reduction Measurement of efficiency Preparation of budgets Identification of unprofitable activities Identification of material losses Identification of idle

1. Cost Analysis: Cost concepts
Business Economics and Financial Analysis

2. Cost - Introduction
Cost, in common usage, the monetary value of
goods and services that producers and
consumers purchase.
 cost is the measure of the alternative
opportunities foregone in the choice of one
good or activity over others.
 For a consumer with a fixed income, the
opportunity cost of purchasing a new
domestic appliance may be.

3. Cost Classification

4. Cost-output relationship
Knowledge of the cost-output relation helps the manager in
cost control, profit prediction, pricing, promotion etc.
The relation between cost and its determinants is technically
described as the cost function.
C= f (S, O, P, T ….)
Where;
 C= Cost (Unit or total cost)
 S= Size of plant/scale of production
 O= Output level
 P= Prices of inputs
 T= Technology

5. Cost-output relationship – Short run
Total cost is the actual money spent to
produce a particular quantity of output.
Total Cost is the summation of Fixed
Costs and Variable Costs.
TC = TFC + TVC

6. Cost-output relationship – Long run
 Long period gives sufficient time to business
managers to change even the scale of
production.
 All the factors of production are variable.
 All the costs are variable costs and there is
no fixed cost.
 The supply of goods can be adjusted to their
demands because scale of production and
factors of production can be changed.

7. Cost-output relationship – Long run
 Helps in ascertainment of cost
 Need for control of cost
 Useful in decision making ( Make or buy, retain or
replace, continue or shut down, accept or order
etc..)
 Fixing selling prices
 Best inventory control
 Cost reduction
 Measurement of efficiency
 Preparation of budgets
 Identification of unprofitable activities
 Identification of material losses
 Identification of idle time, idle capacity
 Improve the productivity
 Cost comparison

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