POLITEHNICA UNIVERSITY OF TIMISOARA

FACULTY OF ELECTRONICS AND TELECOMMUNICATIONS

COST OF PRODUCTION

IORDAN ELVIS CRISTIAN

2nd YEAR, GROUP 1.1

TIMISOARA, 2013

INTRODUCTION

Cost is a sacrifice of resources to obtain a benefit or any other resource. For example in production of a car, we sacrifice material, electricity, the value of machine 's life (depreciation), and labor wages etc. Thus these are our costs. Costs are usually classified as follows: * Product cost(cost of production) * Period cost

In this paper, we will analyze the cost of production with all what it involves. For the beginning, it is necessary to know that the cost of production is classified into:

- Direct materials: Represents the cost
*…show more content…*

Consider the following hypothetical example of a boat building firm. The total fixed costs, TFC, include premises, machinery and equipment needed to construct boats, and are £100,000, irrespective of how many boats are produced. Total variable costs (TVC) will increase as output increases.

Plotting this gives us Total Cost, Total Variable Cost, and Total Fixed Cost.

Given that total fixed costs (TFC) are constant as output increases, the curve is a horizontal line on the cost graph. The total variable cost (TVC) curve slopes up at an accelerating rate, reflecting the law of diminishing marginal returns. The total cost (TC) curve is found by adding total fixed and total variable costs. Its position reflects the amount of fixed costs, and its gradient reflects variable costs. But, from an economical point of view, we cannot talk about fixed and variable costs without taking into consideration the marginal costs. In fact, marginal cost is the cost of producing one extra unit of output. It can be found by calculating the change in total cost when output is increased by one unit.

It is important to note that marginal cost is derived solely from variable costs, and not fixed costs. The marginal cost curve falls briefly at first, then rises. Marginal costs, as the economists say, are derived from variable costs (mentioned above) and

Related

- Decent Essays
## Essay about Study Guide

- 1344 Words
- 6 Pages

Total contribution needed to cover the old fixed costs + new fixed cost + profit is just the three factors added together.

- 1344 Words
- 6 Pages

Decent Essays - Decent Essays
## Unit 3 Ip Econ 220 Essay

- 702 Words
- 3 Pages

This report will provide insight on what your management team should do concerning production costs. We will examine 2 different scenarios and provide our decision as to which makes most sense. In the first scenario, the total fixed cost of the production is 1,000,000. In the second

- 702 Words
- 3 Pages

Decent Essays - Better Essays
## Huxley Maquiladora Essay

- 9786 Words
- 40 Pages

In the previous chapter, we discussed the economic theory of production. Comprehending production theory (the relationship between inputs and output) is a necessary prerequisite to understanding cost theory (the relationship between production and costs). As we noted in the previous chapter, costs are derived from production activities. As worker productivity increases, for example, unit costs decrease.

- 9786 Words
- 40 Pages

Better Essays - Decent Essays
## Boston Medical Center Essay

- 1010 Words
- 5 Pages

* If the fixed cost rose to 20% the total margin cost would be $ 87,580 which would be a substantial increase of $16,112 from question 1

- 1010 Words
- 5 Pages

Decent Essays - Better Essays
## Qrb Working with Numbers and Formulas

- 1516 Words
- 7 Pages

The Law of diminishing returns states that if one factor of production is increased while the others remain constant, the overall returns will relatively decrease after a certain point. The total fixed cost is the same regardless of the output; the total variable costs will change with the level of output resulting in the total cost as the sum of the fixed cost and variable cost at each level of output. Over the 0 to 4 range of output, the TVC and TC curves slope upward. They reflect a decreasing rate due to the increasing minor returns. The slopes curves will increase due to these diminishing marginal returns.

- 1516 Words
- 7 Pages

Better Essays - Good Essays
## Acc 202: Final Project Part Ii Budget Variance Report.

- 1174 Words
- 5 Pages

The budget analysis shows that the labor hours of the firm are higher than the budgeted amount. As such, the firm needs to evaluate the cost benefit analysis of making or buying their products. To make this decision, various factors need to be considered. Before making the decision, Peyton needs to evaluate the marginal costs and revenue of making versus buying the products. The firm should take the option which provides the highest marginal profit which is the

- 1174 Words
- 5 Pages

Good Essays - Good Essays
## Egt1 Task 1

- 991 Words
- 4 Pages

In this paper I am going to explain some of the key terms that companies need to keep in mind when operating their business. First, we will start with marginal revenue, which is defined simply as the extra revenue that is made for each additional unit of a product that is sold. This is directly related to marginal cost, which is what it costs the company to make that additional unit of product.

- 991 Words
- 4 Pages

Good Essays - Better Essays
## Qrb501 - Week One Problems

- 1683 Words
- 7 Pages

The Marginal Cost graph intersects the Average Total Cost graph and the Average Variable Cost graphs at their minimum points. As long as the cost of producing one additional unit remains less than average total cost, the average total cost continues to fall. When marginal cost finally exceeds average total cost, average total cost begins to rise in response. The same effect applies to the relationship between marginal cost and average variable cost.

- 1683 Words
- 7 Pages

Better Essays - Satisfactory Essays
## Practice ECF1100 final exam 01 2014

- 2064 Words
- 9 Pages

1) If a monopolist's price is $65 a unit and its marginal cost is $25 for the last unit produced,

- 2064 Words
- 9 Pages

Satisfactory Essays - Decent Essays
## Essay about Egt1 Task 1

- 702 Words
- 3 Pages

In comparison, the marginal cost is the added cost of producing one more unit of output. It is determined by the change in total cost (TC) divided by the change in output (Q). MC= TC/Q. In the provided scenario, for Company A to produce one widget TC=$30, to produce two widgets TC=$50 thus the marginal cost was $20; furthermore the cost per widget to produce was $25. Marginal cost will continue to decrease for Company A until they reach their profit maximization of $42.86 per widget at 7 widgets. Marginal cost will then begin to decrease for every additional widget produced until the end result of 15 widgets with a MC that exceeds $80, also allowing TC to topple to TR ($1220/15=$81.33).

- 702 Words
- 3 Pages

Decent Essays - Decent Essays
## Marginal Cost: The Role Of Full Costing In Healthcare

- 382 Words
- 2 Pages

According to Investopedia, “Full costing is an accounting method used to determine the complete end-to-end cost of producing products or services.” Full costing is also called "full costs" or "absorption costing."

- 382 Words
- 2 Pages

Decent Essays - Decent Essays
## Case Study On Cost Accounting

- 1108 Words
- 5 Pages

Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance (Cost Accounting, n.d.).

- 1108 Words
- 5 Pages

Decent Essays - Decent Essays
## Break Even Point

- 2871 Words
- 12 Pages

As an example, if fixed costs are $100, price per unit is $10, and variable costs per unit are $6, then the break-even quantity is 25 ($100 ÷ [$10 − $6] = $100 ÷$4). When 25 units are produced and sold, each of these units will not only have covered its own marginal (variable) costs, but will have also have contributed enough in total to have covered all associated fixed costs. Beyond these 25 units, all fixed costs have been paid, and each unit contributes to profits by the excess of price over variable costs, or the contribution margin. If demand is estimated to be at least 25 units, then the company will not experience a loss. Profits will grow with each unit demanded above this 25-unit break-even level.

- 2871 Words
- 12 Pages

Decent Essays - Good Essays
## Johnson & Johnson And The Product Essay

- 978 Words
- 4 Pages

All the costs by a company can be broken into two categories, fixed costs and variable costs. Costs that are independent of output are called fixed costs. Fixed costs remain constant throughout the relevant range and are usually considered sunk for the relevant range. Buildings and machinery are included inputs that cannot be adjusted in the short term. They are only fixed in relation to the quantity of production for a certain time period. The cost of all inputs is variable, in the long run.

- 978 Words
- 4 Pages

Good Essays - Decent Essays
## The Differences between Static and Flexible Budgets

- 588 Words
- 2 Pages

The essential relationship between fixed and variable costs is the same whether the budget is static or flexible. The key is that in the flexible budget, both fixed and variable costs are subject to change. In most cases,

- 588 Words
- 2 Pages

Decent Essays