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Finance Aspect-cost of capital

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Cost of Producon or Total Cost (TC)
expenses faced by an organizaon
xed cost (FC)variable costs (VC)
xed costsvariable costs.
Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC)
Fixed Costs (FC)

 
!
" #$$$
%  
& 
' (permanent contracts
) $
*  
+ ,
"

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Variable Costs (VC)
$-$
.$$
!$$
.$
Average Fixed Cost (AFC)
/01$0/01$$/21
/21
AFC =
Total
¿Cost(TFC)
¿
TotalOutput (Q)
03$0/01/1$
/21.40

Average Variable Cost (AVC)
$/-1$-$/-1$$
/21
AVC =
Total VariableCost(TVC)
Total Output (Q)
%

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Cost of Production or Total Cost (TC) Costs are defined as those expenses faced by an organization when producing a good or service for a market. In the short run a firm will have fixed cost (FC) and variable costs (VC) of production. Total cost is made up of fixed costs and variable costs. Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC) Fixed Costs (FC) The cost of all fixed inputs in a production process. Another way of saying this: production costs that do not change with the quantity of output produced changes. These costs relate do not vary directly with the level of output. Examples of fixed costs include: 1. Rent paid on buildings and business rates charged by local authorities. 2. The depreciation in the value of capital equipment due to age. 3. Insurance charges. 4. The costs of staff salaries e.g. for people employed on permanent contracts. 5. Interest charges on borrowed money. 6. The costs of purchasing new capital equipment. 7. Marketing and advertising costs. Variable Costs (VC) The cost of all variable inputs in a production process. Variable costs vary directly with output. I.e. as production rises, a firm will face higher total variable costs because it needs to purchase extra resources to achieve an expansion of supply. Examples of variable costs for a business include the costs of raw materials, labor costs and other raw materials used directly in the production process. Average Fixed Cost (AFC) Average fixed cost (AFC) ...
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