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What Utility of Cost Concepts in Daily Life?

by Jul 9, 2017Accounting

The world is broadening its horizons day by day. It can be reflected in business areas, universities and school teach us all kinds of subjects. Important subjects like Economics, Science, and Accounting are necessary to understand them not only for the grades but, to apply the concepts of these topics in the daily life.

So here cost concept homework answers explain the usage of cost concepts and how one can use it to solve some problems of the daily routine.

First of all, it is essential to learn about value itself. And everyone is familiar with the term ‘cost’. It is a pretty self-explanatory term which refers the amount associated with the job activity, or an item or a service.

The cost of item consists of different aspects included in the manufacturing of the item or product.

Cost is divided into three groups:

  • Material
  • Labour
  • Expenses

Every day one has to make several decisions about if the cost is right for the product or not. Cost concept homework answers help to understand it in the better way as the cost concept is used to analyse the cost of product or project in short or long run.

There are different types of cost which we come across every day. Let’s look at all the types of cost concepts.

  • Total fixed costs
  • Total variable costs
  • Total cost
  • Marginal cost

Fixed costs

The type of cost which does not change from time to time, person to person and area to area because it is documented that way.

If we take the real example of day to day life with Cost Concept Homework Answers, we can comprehend the term of fixed costs.

For example, there is a person named ABC who lives in the rented apartment, does a good job and pays taxes. If we get in the ABC’s shoes, every bill amount will vary, grocery, gas, and other expenses will defer month to month.

But, the amount of rent and taxes will not be any different for the period of time. Every month person ABC pays the same amount of rent, pays the same amount of taxes and same percentages of interest on loans.So, general life expenses which are having fixed costs can be noted down and used for expenditure and saving amount for better future.

Variable costs

Variable cost is the amount of product or item which may differ from time to time, person to person and location bases. Cost concept homework answers explain the variable costs in details as described below.

A person named PQR is a public speaker who travels to the different location where he/she is invited and address the public as the part of the job. Whatever the salary PQR gets is not fixed. But, it varies from the subject to subject and time length he/she is going to speak. So, the salary he/she is given from the company is considered as the variable cost from a company. So every day, the person charges the variable cost as the part of speaking job.

Variable cost depends upon several aspects of the job or product.

Total costs

The conflation of fixed costs and variable costs give a number of total costs.

Not everyone is the expert financial person who can manage the finances in the best way possible. But, cost concept homework answers will help everyone to manage the daily expenditure in better way possible.

Person ABC pays the fixed costs with rent, insurance amounts and taxes. He also buys food, pays for gas, goes to concerts which include the variable costs.

To have a track of financial records, a person needs to calculate the total cost. In simple words, the total cost is estimated by combining fixed cost and variable cost.

Marginal cost

Cost concept homework answers explain that the marginal cost is the increase or decrease in the overall cost of manufacturing by producing extra item.An everyday example can help us to comprehend the term in better ways.

Suppose, person PQR is a baker who rents a bakery and bakes cakes on a daily basis as per the orders. Now the person has calculated profit margins on every order he/she gets.

PQR has the order of 50 cakes in 3 days. PQR estimates the fixed cost of the decree, rent of three days. Machine costs for three days and so on. Variable costs are also estimated by material required for the cakes, labour charge of himself, etc.  After all, the total estimation value is calculated and taking the profit of 100 bucks on each cake.

At the end of production, PQR gets an order of baking 5 more cakes in addition to 50 cakes. After producing 50 cakes, there is leftover flour from which 5 cakes are easy to bake. In this situation, the profit margin on extra 5 will be more than 100 bucks.

If PQR has no flour left and he/she has to purchase more bulk flour for only 5 cakes, then the margin cost will be higher, and margin profit will be lower. In such case, of higher margin cost one should not accept the extra job.

Cost concept homework answers focuses on the core understanding of the subject, by which one can utilise the knowledge in practical ways as concepts of any subject can be understood by the real practical practice rather than reading theory only. Hope these day to day examples of using cost concepts have helped you to comprehend the cost concepts.