Theory of Cost

Theory of Cost

General Economics

Cost Analysis

? Cost Analysis refers to the Study of Behaviour of Cost in relation to one or more Production Criteria like size of Output, Scale of Operations, Prices of Factors of Production.

? In other words, Cost Analysis related to the Financial Aspects of Production Relations against Physical Aspects.

General Economics: Theory of Cost

2

Fixed Cost &

Variable Cost

Accounting Cost

& Economic Cost

Cost Concepts

Outlay Cost

&

Opportunity Cost

Direct Cost & Indirect

Cost

General Economics: Theory of Cost

3

Accounting Costs

? Accounting Costs are those Costs which are actually incurred & recorded in the Books of Accounts by the Firm in Payment for Various Factors of Production.

? For Example, Wages to workers employed; Rent for the Building he hires; Prices of the Raw Materials; Fuel & Power, etc.

? Also Called as Explicit Cost.

General Economics: Theory of Cost

4

Economic Costs

? It includes:

? The Normal Return on Money Capital invested by the Entrepreneur himself in his own Business. (Implicit Cost)

? The Wages & Salary not Paid to the Entrepreneur but could have been Earned if the Services had been Sold somewhere else.

? Economic Cost = Accounting Cost +

Implicit Cost

General Economics: Theory of Cost

5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download