Analysis of Cost, Profit and Total Revenue
Manuel V. Gallego Foundation Colleges, Inc.
Cabanatuan City, Philippines
Analysis of Cost, Profit and Total Revenue
Prepared by: Cajucom, Mary Jane Constantino, Georgia Escuadro, Abigail Ferry, Yasmin Joy Orobia, Maribel Lopez, Rannel Tumale, Mary Joyce Submitted to: Mrs. Gina Braga Accounting versus Economic Costs Economic costs Are forward looking costs, meaning, economist are in tune with future costs because these costs have major repercussions on the potential profitability of the firm. ● Opportunity cost, or costs that are incurred by not putting the resources to optimum use. ● Sunk costs, these are cost that are irretrievable due to the fact that these are already incurred and do not affect a firm’s decision. Accounting Cost Tend to be retrospective: they recognize costs only when these are made and properly recorded. Therefore, the difference between economic costs and accounting costs is the opportunity cost. Implicit versus Explicit Costs Explicit costs Refer to the actual expenses of the firm in purchasing or hiring the inputs it need. Implicit costs Refer to the value of inputs being owned by the firm and used in its own production process. Short-run Cost Analysis Types of short-run cost:
1.Total fixed costs (TFC) costs that do not vary with output.
2.Total variable cost (TVC) costs that vary with output.
3.Total costs (TC) the sum of total fixed costs and total variable costs. FORMULA: TC= TFC+TVC
4.Average fixed cost (AFC) total fixed costs divided by the number of output produced (Q). FORMULA: AFC=TFC/Q
5.Average variable cost (AVC) total variable costs divided by the number of output produce (Q). FORMULA: AVC=TVC/Q
6.Average total cost (ATC) total costs divided by the number of output produced (Q). Also defined as the cost per unit of output. FORMULA: ATC=TC/Q
7.Marginal cost (MC) changes in total costs divided by the change in output produced (Q). It is also the
Cabanatuan City, Philippines
Analysis of Cost, Profit and Total Revenue
Prepared by: Cajucom, Mary Jane Constantino, Georgia Escuadro, Abigail Ferry, Yasmin Joy Orobia, Maribel Lopez, Rannel Tumale, Mary Joyce Submitted to: Mrs. Gina Braga Accounting versus Economic Costs Economic costs Are forward looking costs, meaning, economist are in tune with future costs because these costs have major repercussions on the potential profitability of the firm. ● Opportunity cost, or costs that are incurred by not putting the resources to optimum use. ● Sunk costs, these are cost that are irretrievable due to the fact that these are already incurred and do not affect a firm’s decision. Accounting Cost Tend to be retrospective: they recognize costs only when these are made and properly recorded. Therefore, the difference between economic costs and accounting costs is the opportunity cost. Implicit versus Explicit Costs Explicit costs Refer to the actual expenses of the firm in purchasing or hiring the inputs it need. Implicit costs Refer to the value of inputs being owned by the firm and used in its own production process. Short-run Cost Analysis Types of short-run cost:
1.Total fixed costs (TFC) costs that do not vary with output.
2.Total variable cost (TVC) costs that vary with output.
3.Total costs (TC) the sum of total fixed costs and total variable costs. FORMULA: TC= TFC+TVC
4.Average fixed cost (AFC) total fixed costs divided by the number of output produced (Q). FORMULA: AFC=TFC/Q
5.Average variable cost (AVC) total variable costs divided by the number of output produce (Q). FORMULA: AVC=TVC/Q
6.Average total cost (ATC) total costs divided by the number of output produced (Q). Also defined as the cost per unit of output. FORMULA: ATC=TC/Q
7.Marginal cost (MC) changes in total costs divided by the change in output produced (Q). It is also the