Types of cost of production

What are the costs of production? That is, they have to be paid. Variable costs are costs that change with the quantity of output produced.

Opportunity Cost 3. Production Costs 5. Average and Marginal Cost.

Fixed Costs or Supplementary Costs 8. Cost of production refers to the total cost incurred by a business to produce a specific quantity of a product or offer a service. In economics, the cost of production is defined as the expenditures incurred to obtain the factors of production such as labor, lan and capital, that are needed in the production process of a product. Variable Cost – It is the cost of variable inputs used in production. These costs vary with the change in volume of production.

These types of cost do not directly affect the level of production but may vary with change in production facilities e. A direct cost is similar to a variable cost in that it compares the cost with the level of output. However, a direct cost is any cost, which is directly related to the output level of a particular product or department.

Direct costs are related to producing a good or service. Which type of production should be used by the company depends on the type of product being manufacture the demand for the product as well as the supply of raw materials. The cost can easily be.

There are various advantages to each types of production. As the name suggests these are unlike fixed costs and fluctuate on the level of production. These types of business costs change upon the quantity of the products are the services that the company renders. Batch Cost : It is the aggregate cost related to a cost unit which consists of a group of similar articles which maintain its identity throughout one or more stages of production.

Prime cost is the aggregation of direct material cost and direct labor cost. Direct labor Direct labor costs are the wages Employee Stock Ownership Plan (ESOP) An Employee Stock Ownership. When choosing a life.

They are also called overheads. Examples of typical variable costs include fuel, raw materials, and some labour costs. Variable overhead: Indirect production costs that increase or. Conversion cost is also called production cost. It is the cost incurred for converting the raw material into finished product.

Direct material cost is not included in the production cost. In other words, it is the combination of direct labor, direct expenses and factory overhead.

Capacity cost is an alternative term used for. Cost curves: a graph of the costs of production as a function of total quantity produced. In a free market economy, firms use cost curves to find the optimal point of production (to minimize cost ). Maximizing firms use the curves to decide output quantities to achieve production goals. Accounting costs are those for which the entrepreneur pays direct cash for procuring resources for production. These include costs of the price paid for raw materials and machines, wages paid to workers, electricity charges, the cost incurred in hiring or purchasing a building or plot, etc.

In this article, we will discuss more objectives, advantages, costing and meaning of costs. Manufacturing costs - incurred in the factory to convert raw materials into finished goods. It includes cost of raw materials used (direct materials), direct labor, and factory overhead.

Nonmanufacturing costs - not incurred in transforming materials to finished goods. These include selling expenses (such as advertising costs, delivery expense, salaries and commission of salesmen) and administrative expenses (such as salaries of executives and legal expenses).