Presentation

On

Sub:

COST AND COST CONCEPT

EEM3nd Sem Computer

(2016-17)

Prepared By:

Name: Shail M. Nakum

Enr. No: 150410107054

Class: S.Y.: Computer

Div.-I

COST

Cost is the prize paid by the

user of the scare economic

resources to the supplier of

the resources.

Cost concept is used for

analyzing the cost of a

project in short and long

run.

TYPES OF COST

1) On the basis of service period :

i) Short-run cost

ii) Long-run cost

2)On the basis of cost behaviour to

production volume:

i) Fixed cost

ii) Variable cost

3) On the basis of changes in total costs in relation

to certain specified volume :

I) Total cost

ii) Average cost

iii) Marginal cost

4) Some other important classification of costs:

I) Opportunity cost

ii) Implicit cost

Iii) Sunk cost

SHORT-RUN COST

Short-run costs have a short-term service

period, usually upto one year.

Costs incurred on materials, operating

expenses like cost of labour and utilities

like power, water they are known as short-

term cost.

LONG-RUN COST

The long-run costs are those cost whose benefits period extend

fir several future years.

Purchase of fixed assets like land, building, machines, furniture,

vehicles etc. Cost incurred on research and development and

training to employees are treated as long-term cost.

FIXED COST

Fixed cost remain fixed as per unit

of time rather than volume of

production.

Thus, such cost remain fixed

irrespective of volume of production

as shown in graph.

Examples : Interest Rate, Rent,

Salary, Depreciation on machines.

VARIABLE COST

The variable cost are those

costs which vary with the

volume of production.

It is generally directly or

proportionality related to the

volume of production as

shown in graph.

Examples : Cost of direct

materials, Direct labour,

Direct expenses like power

consumption by machines.

TOTAL COST

The total cost is the sum

of total fixed costs and

total variable costs.

TOTAL = TOTAL + TOTAL

COST FIXED COST VARIABLE COST

AVERAGE COST

The average cost indicates the per unit cost

at different level of production activities.

Because of the fixed element of the TFC,

the average cost per unit decreases as the

production increases.

produced units ofNumber TVC TFC cost Average

MARGINAL COST

The marginal cost is defined as the change

in total costs with one unit increase or

decrease in the current quantity produced.

producedΔQuantity

cost ΔTotal cost Marginal

OPPORTUNITY AND SUNK

COST

Opportunity cost is the cost of the next best

alternative sacrificed.

The opportunity cost is also called

alternative cost.

Sunk cost are such cash outflows incurred

currently which can not be reversed at later

stage.

IMPLICIT AND EXPLICIT

COST

The explicit cost is certain and fixed

E.g.. 10% interest on bond.

The implicit cost are also consider in terms

of incidental events or cost of

inconvenience.

BREAK EVEN POINT

It is a situation where there is a no profit and

no losses.

Revenue = Expenses

BREAK EVEN ANALYSIS

Break even analysis is based on the cost

behaviour pattern to the level of production.

It is a key consideration in the pricing

decisions of any businesses.

USES OF B.E.A

1) To continue or To shut down the plan :

Contribution positive To continue

Contribution negative To be indifferent

Contribution equal To shut down

2) To make or buy a component :

Outside price > Variable cost - To make

Outside price = Variable cost - To be

indifferent

Outside price < Variable cost - To buy

3) Price discrimination :

To coat price for specific job.

Break even analysis can be explained in two

forms.

Algebraic

Graphical

ALGEBRIC

REPRESENTATION

unitper onContributi

unitper price Selling TFC B.E.P

cost Variable -Sales on Contributi

Sales

100 * onContributi RatioPV

RatioP.V

cost fixed Total Ratio PVusing B.E.P.

GRAPHICAL

REPRESENTATION

ASSUMPTION AND

LIMITATION OF B.E.A

All the cost are differentiable between fixed

cost and variable cost.

The selling price per unit is independent of

volume of sales.

Variable cost per unit is independent of

volume of production.

Total fixed cost remain fixed with the

relevant range of capacity utilization.

GM MOTORS

A classic example of

break even success

and sustenance.

Turnover of in its first full year of operation. (First

few years)

The company has a turnover of $37,084 Mil sept 2016.

Number of employees in year 2015 was 216,000 .

Information about GM

Motors

They owned: Buick, GMC, Chevy, Pontiac, Saturn,

Cadillac, Opel, Hummer, Holden, Saab,

Vauxhall.

they are

shareholders in: Daewoo, Suzuki, Isuzu

They are in Joint

ventures with: Autovaz (lada), SAIC

they are in Hybrid

partnerships with: Toyota, Daimler, Chrysler

They Do engines

for: Fiat and Honda

They do

manufacturing for: Renault

Early days :

Founded September 16, 1908; 108 years ago (as General

Motors Corporation)August 11, 2009 (as General Motors

Company)

Founder : William C. Durant,

Charles Stewart Mott

Frederic L. Smith

The GM Renaissance Center in Detroit,

Michigan.

Chose the method of franchisee model like Buick and other

automobile companies with networking and stringent quality

control.

Cost incurred

Fixed cost

a) Electricity = 50,000 pm

b) Salaries = 30,000 pm ( cook and attendant )

c) Machinery = 4,00,000 ( one time cost )

Variable cost

a) Production and raw materials = 5,00,000 pm

b) Other items = 10,000 pm ( assembly line maintenance cost

etc.)

Selling price

Ranging from US$10,000 to US$100,000+

Current situation

Average demand

General Motors (NYSE: GM) sold 208,290 vehicles in

October to individual or “retail” customers in the U.S.

Average revenue

152.4 billion USD (2015)

Projected break even point

10 million and 11 million annual units — a (huge) decline

of 8 million vehicles compared to the estimated 17.7 million

units forecast to be sold this year.

Number of employees in year 2015 was 216,000 .

Strategies applied

Marketing Strategy plays one of the most important role to

achieve company goals and objectives.

general Motor is one of the best automobile company in the

word. General Motors manufacturing the cars and trucks in the

international market.

General Motors segmentation strategy is main aim to target the

different groups. In this GM think that the whole market is

single market

General Motors design the car with the different range of cost

and it design it’s strategy according to the Income, Age,

Family, occupation.