Cost and It’s types

Cost

The total amount of money which which we spend to produce the item or buy item from supplier plus expense on it.

For example:

shopkeeper is purchasing item for his shop item worth is 100000 , transport expense on it is 1000 and wages expense on item is 500. for cost calculation we have to addition all amounts

100000+1000+500 = 101500 cost of the product.

Types of Cost

fixed cost

fixed are are those money which we have to pay monthly or yearly which is fixed.

for example: Rent, Interest, insurance, licence fees

Variable cost

Variable cost is a changeable cost it will change according to our product quantity if we increase product quantity it will increase and if we decrease product quantity our variable cost will be decrease.

for example: if we produce 1000 pens it cost 5000 but if we increase the production and produce 2000 pens it cost 10000 because when we increase the quality raw material cost is also increase, labor expense also increase.

Total cost

total cost means fix cost + variable cost.

for example: we produce 10000 pens which has variable of 50000 and we have fix cost of shop rent of 5000.

variable cost 50000 + fix cost 5000 = total cost 55000.

Semi variable cost

semi-variable cost has both values of fixed cost and variable cost.

for example: In one class there are maximum sitting area of 50 students if students are 55 so cost will be increase we have to arrange another class for student and hire new teacher for then. the cost of electricity will be increase and salary expense will be increase. It mean cost is fix till 50 student if students become more than 50 cost become variable.

Marginal Cost

marginal cost is the additional cost of next unit produced it arise when extra production of unit is needed.

for example: samsung a-series one unit is sold out and they are producing another unit the cost of that unit called marginal cost.