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CPT Chapter Theory of Cost

CA CPT Exam  

With Bharat Galani.Duration:2hrs 22min

Theory of CostDuration (min:sec)
Cost concept 
Types of Cost24:00
Summary Cost concept04:51
Cost Curves 
Cost Function03:02
Short run total cost (Fixed Cost, Variable Cost, Semi variable Cost, Step up cost)23:59
Total Cost Curve03:55
Average & Marginal Cost03:12
Cost Curves20:35
Long run Total Cost Curve17:52
LAC Reasoning08:56

Few MCQ Questions-

Which of the following is known as Envelope curve?
(a) MC curve
(b) AFC curve
(c) LAC curve
(d) TFC curve

In the long run all factors are
(a) Fixed
(b) Variable
(c) All factors remain unchanged
(d) None.

A firm will close down in the short period if its average is less than its:
(a) Average cost
(b) Average variable cost
(c) Marginal cost
(d) Average fixed cost

Implicit cost may be defined as the:
(a) Costs which do not change over a period of time
(b) Costs which the firm incurs but doesn't disclose
(c) Payment to the non owners of the firm for the resources
(d) Money payment which the self employed resources could have earned in their best alternative employment

Payment made to outsiders for their goods and services are called:
(a) Opportunity cost
(b) Real cost
(c) Explicit cost
(d) Implicit cost

In which of the following cases opportunity cost concept applies?
(a) Resources have alternative uses
(b) Resources have limited uses
(c) Resources have no use
(d) None of the above.

Fixed cost is known as ____ cost
(a) Prime
(b) Supplementary
(c) Overhead
(d) Direct



Cost analysis
Types of cost
Short run cost
Long run cost

Cost concepts

Accounting cost and Economics cost
Outlay costs & Opportunity costs
Direct or traceable costs & Indirect or non- traceable cost
Fixed & variable cost

Accounting Cost vs Economics Cost
Accounting cost (Explicit cost)
Salary paid to workers , Rent paid
Cash outflow

Implicit cost
Owner {Capital Invested + Self time invested}
No cash outflow

Economic cost = Accounting cost + Implicit cost
Economics Profit = Revenue- Economics cost .
Accounting Profit vs Economics Profit

Outlay cost vs opportunity cost

Outlay cost= expenditure of funds. recorded in books.
Opportunity cost = cost of forgone opportunity.Not recorded in books.
Example- Cost of education

Direct vs Indirect Cost

Direct or traceable cost
traceable with product
Ex-Raw Material , direct wages

Indirect or non-traceable cost
Not traceable with product
Ex- Office Rent, Marketing expense, Travel bills

Fixed vs Variable cost

Fixed or constant cost
Vary not with output but capacity level.
programed fixed cost
Ex- Rent,Interest on loan

Variable cost
vary with output
Ex-Raw material, wages etc

Short run cost

Variable cost = can be changed with output.
dependent on output
Ex-direct labour, raw material
variable cost is fixed per unit

Fixed cost = cannot be changed with output
independent of output
Ex- Rent,Salary to manager
Semi variable cost
Fixed cost is variable per unit

Longrun cost

All the factors can be changed
Select the plant size for given output for minimum cost

Short run curve - plant curve
Long run curve- planning curve

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