Accounting Costs Concepts

Costs and profits are very important concepts in microeconomic analysis.

Costs are necessary expense in an enterprise must and maybe categorized as variable or fixed costs. When added together, these costs form the total costs of an enterprise.

Variable costs (VC) are expenses incurred

productions that tend to change directly as production changes. VC behaves in such

a way that if production is increased, cost also increase. If production decreased then it is expected that the total variable cost also decrease.

Formula for TVCTVC= ( VC/U) (U)Where: TVC- Total

Variable Cost VC/U-Variable Cost per

unit of the products U- Unit

Fixed Cost (FC) – are expenses that do not change or vary with production. Regardless of the production level, this cost remains the same.

Example: Rents for utilities and city services interest payments on loans

Adding all fixed costs of the enterprise gives us the TFC

TFC = TVC + TFC