BCOM 404 Cost Management Summary – Easy Notes to Score High (Exam Ready)

Cost Management – Summary Notes
🔹 1. Meaning of Cost
 Cost = the amount spent to produce goods or services.
 It includes money, time, and resources used in production.

👉 Example:
Making cardboard boxes → cost includes raw material, labor, electricity, transport.




🔹 2. Types of Cost
(a) Explicit Cost

 Actual money paid.
 Recorded in books.

👉 Examples:

 Wages
 Rent
 Raw material



(b) Implicit Cost

 Cost of using own resources (not paid in cash).
 Also called opportunity cost.

👉 Example:

 Using your own shop instead of renting it → rent is implicit cost.



(c) Fixed Cost (FC)

 Does not change with production level.
 Paid even if production is zero.

👉 Examples:

,  Rent
 Salary of permanent staff

📌 Feature: Constant in total, decreases per unit when output increases.



(d) Variable Cost (VC)

 Changes with production.
 More production = more cost.

👉 Examples:

 Raw material
 Electricity
 Packaging



(e) Total Cost (TC)

 Total spending on production.

👉 Formula:
TC = FC + VC




🔹 3. Short Run Costs
Short run = some factors are fixed.

Types:

(a) Total Fixed Cost (TFC)

 Remains constant.

(b) Total Variable Cost (TVC)

 Increases with output.

(c) Total Cost (TC)

 TC = TFC + TVC