Cost Concepts and Design econmics Flashcards
fixed cost
unaffected by changes in activity level
Variable cost
A variable cost is a corporate expense that changes in proportion to how much a company produces or sells. Variable costs increase or decrease depending on a company’s production or sales volume—they rise as production increases and fall as production decreases.
Incremental Costs
is the total cost incurred due to an additional unit of product being produced. Incremental cost is calculated by analyzing the additional expenses involved in the production process, such as raw materials, for one additional unit of production.
Direct cost
is a price that can be directly tied to the production of specific goods or services
specific product
indirect costs
difficult to attribute or allocate to a specific output or work activity
Overhead costs
what it costs to run the business, including rent, insurance, and utilities. Operating expenses are required to run the business and cannot be avoided. Overhead expenses should be reviewed regularly in order to increase profitability.
ex salary for security person
Cash cost
a payment that involves the use of cash
book cost
a cost that does not involve a cash transaction but is reflected in the accounting system
ex: depreciation
Sunk cost
a cost that has occurred in the past and has no relevance to future costs
ex irreversible costs like fixing a transmission
Opportunity costs
the cost the best-rejected opportunity
student rejects a job that pays 20000 and goes to school instead
life cycle cost
summation of all costs related to a product
The general price demand relationship
Calculus can help determine the demand that maximizes revenue
cost, volume, and breakeven point relationships
