Give a numerical example of cost function and analyze this cost function? Discuss how is this cost function used in decision making?
Ans. Cost is the total cost of producing output
The cost function consists of two different type of cost
Variable cost
Fixed cost
Variable cost: variable cost varies with output. variable cost can be expressed as the product total variable cost per unit.
fixed cost: normally do not vary with output. in general this cost would be incurred whether the items are produced or not.
Cost function
C(x) = F+Vx C= Total cost
F= Fixed cost
V= Variable cost
x = no of unit produced
Example: Output of the produced 100units and Direct material $5 and direct labour is 2 and other direct variable exp. $1 and fixed cost during the period 10000.
Cost function
Calculation of total cost
Variable cost = 100X(5+2+1) = $800
Fixed cost = 10000
calculation of total cost = 800+10000 = $10800
How to use cost function in decision making: With cost function we can analyze total cost of production and per unit cost of product and can also fix the selling price.
Cost function help the management for decision making for fixation selling price and indentifying cost area where improvement is required and reduced the waste or scrap.
Cost function help the presentation of cost related data in better way to help the management for decision making.
Give a numerical example of cost function and analyze this cost function? Discuss how is this...
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