Topic 8. Costs of production 1. The nature and types of production costs. How much does it costs Apple Computer to manufacture each Macintosh? or iphone5? If You are a manager at Apple Computer, you need this financial information and accounting report to set selling prices, or to determine the cost of goods sold, or to evaluate the efficiency of the company's manufacturing operations. The nature of modern business is such that all enterprises require a wide variety of cost data in making day-to-day operating decisions. Decisions of the highest importance depend on the accuracy of the cost data. For 'example, an understatement in the cost of producing an automobile would result in a lower selling price than warranted and cause losses of millions $. In a manufacturing company, cost accounting serves two important managerial objectives: • (1) to determine the per-unit cost of each manufactured product, and • (2) to provide management with information that will be useful in planning future business operations and in controlling costs. In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. More generalized in the field of economics, cost is a metric that is totaling up as a result of a process. Managers are most experienced with cost presented as monetary expenses in an income statement. But economists use a broader concept of cost. To an economist, cost is the value of sacrificed opportunities. • What is the cost to you of devoting 4 hours every week to studying economics of entities? It is the value of whatever you would have done instead with that 4 hours (leisure activities, perhaps). Conclusion: Costs of production are opportunity costs. • 1. Costs exist because resources are scarce and have alternative use. • 2. Costs deal with forgoing the opportunity to produce alternative goods The opportunity cost is the value that the decision maker sacrifices at the time the decision is made and beyond. • To illustrate this point, consider an automobile firm that has an inventory of sheet steel that it purchased for $1,000,000. It is planning to use the sheet steel to manufacture automobiles • As an alternative, it can resell the steel to other firms. If it resells its steel the firm would get $1,200,000. The opportunity cost of using the steel to produce automobiles is thus $1,200,000. Types of costs
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Curs: Theme 8 costs Profesor: Coselev