COSTING

COST
Cost
- value of money that has been used up to produce
something.
Revenues
- also known as income; total amount received by
the company for the goods or services sold.
 Fixed and Variable Cost
Total Cost (TC) has two basic components; namely Fixed Cost
and Variable Cost.

Fixed Cost – does not vary with output.

Variable Cost – cost that vary with output.

Total Fixed Cost (TFC)
- these are the total cost that do not vary with output.
Total Variable Cost (TVC)
- these are the cost that do vary with output.
Total Cost (TC) TC = TFC + TVC
- It is the sum of total fixed cost and total variable cost.
Average Fixed Cost (AFC) AFC = TFC/Q
- this refers to the total fixed cost divided by the number of output
produced.
Average Variable Cost AVC = TVC/Q
- this refers to the total variable costs divided by the number of
output produced.
 Inputs:
Labor Total Product Fixed Inputs:
0 0 1. Stapler
1. Labor
1 1 2. Chair
2. Staple Wire
2 3 3. Area
3. Stapler
4 8
4. Paper
5 10 Variable Inputs:
5. Chair
6 12 1. Staple Wire
6. Area
7 13 2. Paper
8 10 3. Labor
Fixed Inputs:
1. Stapler (I1) Labor TP I1 I2 I3 I4 I5 I6
(stapler) (chair) (Area) (Staple Wire) (labor) (Paper)
2. Chair (I2)
0 0 2 1 1 0 0 0
3. Area (I3)
1 1 2 1 1 1 1 0.5
Variable Inputs:
2 3 2 1 1 3 2 1.5
1. Staple Wire (I4)
4 8 2 1 1 8 4 4
2. Labor (I5)
3. Paper (I6) 5 10 2 1 1 10 5 5

Paper : 6 12 2 1 1 12 6 6

1x4÷8=? 7 13 2 1 1 13 7 6.5

8 10 2 1 1 10 8 5
 Types of Cost
Fixed Inputs: Fixed Cost:
1. Stapler (I1) 1. Stapler (I1) - P60/stapler P60 ÷ 8 = P7.5
2. Chair (I2) 2. Chair (I2) - P1 rent/stage
3. Area (I3) 3. Area (I3) - P2 rent/stage

Variable Inputs: Variable Cost:

1. Staple Wire (I4) 1. Staple Wire (I4) - P28/1000 staples P28÷10000 = P0.028
2. Labor (I5) 2. Labor (I5) - P1/1 minutes
3. Paper (I6) 3. Paper (I6) - P2/bondpaper
Fixed Cost:
1. Stapler (I1) - P60/stapler
(P7.5) Labor TP FC1 FC2 FC3 VC4 VC5 VC6
2. Chair (I2) - P1 rent/stage (Paper)
(stapler) (chair) (area) (staple (Labor)
3. Area (I3) - P2 rent/stage wire)
0 0 15 1 2 0 0 0
Variable Cost: 1 1 15 1 2 .028 1 1
1. Staple Wire (I4) - P28/1000 staples
(P0.028) 2 3 15 1 2 0.084 2 3
2. Labor (I5) - P1/2 minutes
4 8 15 1 2 0.224 4 8
3. Paper (I6) - P2/bondpaper
1 X 4 ÷ 8 = 0.5 5 10 15 1 2 0.28 5 10

6 12 15 1 2 0.336 6 12

7 13 15 1 2 0.364 7 13

8 10 15 1 2 0.28 8 10
LABOR TP I1 I2 I3 I4 I5 I6 FC1 FC2 FC3 VC4 VC5 VC6
(STAPLER) (CHAIR) (AREA) (STAPLE (LABOR) (PAPER)
WIRE)

0 0 2 1 1 0 0 0 15 1 2 0 0 0

1 1 2 1 1 1 1 0.5 15 1 2 .028 1 1

2 3 2 1 1 3 2 1.5 15 1 2 .084 2 3

4 8 2 1 1 8 4 4 15 1 2 .224 4 8

5 10 2 1 1 10 5 5 15 1 2 .28 5 10

6 12 2 1 1 12 6 6 15 1 2 .336 6 12

7 13 2 1 1 13 7 6.5 15 1 2 .364 7 13

8 10 2 1 1 10 8 5 15 1 2 .28 8 10
 TFC TVC TC AC MC
LABOR TP (TVC (TC/Q) ( Change
+TFC) TC /
Change in
Q)
0 0 18 0 18 - -

1 1 18 2.028 20.028 20.028 2.028

2 3 18 5.084 23.084 7.695 1.528

4 8 18 5.224 23.224 2.903 0.028

5 10 18 15.28 33.28 3.328 5.028

6 12 18 18.336 36.336 3.028 1.528

7 13 18 20.364 38.364 2.951 2.028

8 10 18 18.28 36.28 3.628 0.695