Analysis of cost

The role of costs goes far beyond influencing production and profits. Costs affect input choices, investment decisions, and even the decision of whether to stay in business. Is it to hire a new worker or to pay overtime? To open a new factory of expand and old one? To invest in new machinery domestically or relocate production abroad? Bangladesh want to choose those methods of production that are most efficient and produce output at the lowest cost. Analysis of cost is devoted to a thorough. First we consider the full array of economic cost, including the central notion of marginal costs. Then we examine how business accountants measure cost in practice.

Short – Run Cost:

← Total cost

← Marginal cost

← Average cost

Total Cost

Total cost means that represents the lowest total dollar expense needed to produce each level of output q. TC rises as q rises. So that a firm’s total cost (TC) is the cost of all the factors of production it uses. We divide total cost into total fixed cost and total variable cost.

Total cost is the sum of total fixed cost and variable cost. That is,

TC = FC + VC

Fixed Cost

Sometimes we can be called “overhead” or “sunk costs”, they consist of items such as rent for factory or office space, contractual payment for equipment, interest payments on debts, salaries of tenured faculty, and so forth. These must be paid even if the firm produces no output, and they don’t change if output changes. For example, a law firm might have an office lease which runs 10 years and remains an obligation even if the firm shrinks to half its previous size. Because FC is the amount that must be paid regardless of the level of output

Fixed cost (FC) is the cost of the firm’s fixed inputs. Fixed cost includes the cost of renting knitting machines and normal profit, which is the opportunity cost of her