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Business Math Theory Part - All About the Cost


Business Math Theory Part - All About the Cost

Author: Tan Chung Keong
Date: 2/1/2021




       I.            Fixed cost (固定成本) and variable cost (可变成本
)

 

·      This was the most common type of cost that can be found in the business which is variable and fixed cost.

·    The fixed cost will be the cost that will stay remain the same amount even the output goes different. For example, salaries of the employee, depreciation of the asset, property taxes, and so on.

·   What different is the variable cost does react to the difference in output. For example, material cost, utility cost, sales commissions, and so on.

 

 

                            II.            Explicit Cost (显性成本) and Implicit cost (隐性成本)

 

·    Explicit cost is the actual expenditure and been paid off for the production element including labor cost, material cost, facility cost, insurance, advertising cost, and so on. Usually, explicit costs will be record and counting by an accountant.

·         The implicit cost usually not refer to the actual money or cash, but it usually refers to the unseen cost, uncountable cost, or uncontrollable cost such as the opportunities cost. This cost usually appear while enterprise is using the already owned asset such as the depreciation cost of the machine, land, and so on. For example, if the enterprise builds a shopping mall on its land in a low population area and not to build a factory that is more suitable. Then the enterprise will be seen to behave a higher implicit cost.

 


                         III.            Long-term cost(长期成本) and short-term cost(短期成本)

 

·      Long-term cost or known as Long run cost usually would not include any fixed cost inside.  This is because, in the long-term, the firm could change almost everything so that would all be the variable cost. What different is a long-term cost, the firm could able to adjust and adapt to the bigger production scale such as the machine, factory, land, and so on?


·      Short-term cost or known as the short-run cost was the total of the fixed cost and variable cost in the shorter period. Usually, the firm also could not adjust or adapt its production scale, but just some part of the production element could be changed. For example, the firm could change its amount of labor, material but the firm could not change the element such as the facility, factory, land, and so on because these elements would be fixed.


·     More explanation about the Long-term cost and short-term cost will actually lead to the economics of scale, diseconomy of the scale of constant return of scale. FIND OUT MORE.




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