BUSINESS

COSTS

CHAPTER 29
LEARNING TO EXPLAIN AND
OBJECTIVES CLASSIFY DIFFERENT
COSTS OF PRODUCTION
OF A BUSINESS.
TO APPLY AND ANALYZE
BREAK EVEN ANALYSIS IN
SIMPLE BUSINESS
DECISION MAKING
SITUATIONS
LEARNING
TO EVALUATE VARIOUS TYPES OF
PRODUCTION COSTS.
TO APPRAIZE BREAK EVEN CONCEPT
OUTCOMES WITH DAIGRAM AND CALCULATIONS
WHAT ARE THE The financial costs incurred in making a
product or providing a service.
COSTS OF
PRODUCTION?
CLASSIFICATIO DIRECT COSTS
N OF COSTS INDIRECT COSTS

FIXED COSTS

VARIABLE COSTS

MARGINAL COSTS
MARGINAL
COST:
Marginal cost is additional or
extra cost of producing one
more unit of output
BREAK EVEN ANALYSIS:

1.GRAPHICAL METHOD
2. EQUATION METHOD
BEP –
GRAPHICAL
METHOD
BEP -
EQUATION
METHOD
MARGIN OF
SAFETY
This is a useful indication of how much sales could
fall without the firm falling into loss.

BEP output – 400 units

Current output – 600 units
MOS = CURRENT OUTPUT – BEP
OUTPUT
= 600 – 400
= 200
LIMITATIONS
OF BEP