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Karnataka Class 12 Commerce Economics Production Cost Complete Notes

Karnataka Class 12 Commerce Economics Production Cost Complete Notes

Karnataka Class 12 Commerce Economics Production Cost : Karnatak University is a state university located in the city of Dharwad in the state of Karnataka in India. It was established in October 1949, and officially inaugurated in March 1950. The campus spans 750 acres (3 km²). D. C. Pavate was the first official vice-chancellor from 1954 to 1967. The rapid development of the institution is credited to him.

The university was recognized with the “Potential for Excellence” by the University Grants Commission. The university is the second oldest university in the state of Karnataka after the University of Mysore. The Karnatak university once used to serve most of the Karnataka region including Dharwad, Belagavi, Uttara Kannada, Bijapur, Gulbarga, Raichur, Bidar and Bellary. until the 1980s (Manipal Institute of Technology and the Kasturba Medical College of Manipal were affiliated with Karnatak University at Dharwad and all degrees were awarded by Karnatak University in between the years from 1953 to 1965)

Karnataka Class 12 Commerce Economics Production Cost Complete Notes

Karnataka Class 12 Commerce Economics Production Cost : Cakart team members provides here Karnataka Class 12 Commerce Economics Production Cost Complete Notes and other Karnataka Class 12 Commerce Economics Complete Notes in pdf format. We provides you direct link for downloading Karnataka Class 12 Commerce Economics Production Cost Complete Notes in pdf format. Download Karnataka Class 12 Commerce Economics Production Cost Complete Notes and read well.

Karnataka Class 12 Commerce Economics Production Cost Complete Notes

Karnataka Class 12 Commerce Economics Production Cost :  By “Cost of Production” is meant the total sum of money required for the production of a specific quantity of output. In the word of Gulhrie and Wallace: “In Economics, cost of production has a special meaning. It is all of the payments or expenditures necessary to obtain the factors of production of land, labor, capital and management required to produce a commodity. It represents money costs which we want to incur in order to acquire the factors of production”. In the words of Campbell: “Production costs are those which must be received by resource owners in order to assume that they will continue to supply them in a particular time of production”.

Download here Karnataka Class 12 Commerce Economics Production Cost Complete Notes in pdf format

Elements of Cost of Production: The following elements are included in the cost of production:

(a) Purchase of raw machinery,

(b) Installation of plant and machinery,

(c) Wages of labor,

(d) Rent of Building,

(e) Interest on capital,

(f) Wear and tear of the machinery and building,

(g) Advertisement expenses,

(h) Insurance charges,

(i) Payment of taxes,

(j) In the cost of production, the imputed value of the factor of production owned by the firm itself is also added,

(k) The normal profit of the entrepreneur is also included In the cost of production.

Normal Profit: By normal profit of the entrepreneur is meant in economics the sum of money which is necessary to keep an entrepreneur employed in a business. This remuneration should be equal to the amount which he can earn in some other alternative occupation. If this alternative return is not met, he will leave the enterprise and join alternative line of production.

Types/Classifications of Cost of Production: Prof, Mead in his book, “Economic Analysis and Policy” has classified these costs into three main sections:

(1) Production Costs: It includes material costs, rent cost, wage cost, interest cost and normal profit of the entrepreneur.

(2) Selling Costs: It includes transportation, marketing and selling costs.

(3) Sundry Costs: It includes other costs such as insurance charges, payment of taxes and rate, etc., etc.

Karnataka Class 12 Commerce Economics Production Cost Complete Notes

Karnataka Class 12 Commerce Economics Production Cost : Production cost refers to the cost incurred by a business when manufacturing a good or providing a service. Production costs include a variety of expenses including, but not limited to, labor, raw materials, consumable manufacturing supplies and general overhead. Additionally, any taxes levied by the government or royalties owed by natural resource extracting companies are also considered production costs.

BREAKING DOWN ‘Production Cost’

Also referred to as the cost of production, production costs include expenditures relating to the manufacturing or creation of goods or services. For a cost to qualify as a production cost it must be directly tied to the generation of revenue for the company. Manufacturers experience product costs relating to both the materials required to create an item as well as the labor need to create it. Service industries experience production costs in regards to the labor required to provide the service as well as any materials costs involved in providing the aforementioned service.

In production, there are direct costs and indirect costs. For example, direct costs for manufacturing an automobile are materials such as the plastic and metal materials used as well as the labor required to produce the finished product. Indirect costs include overhead such as rent, administrative salaries or utility expenses.

Deriving Unit Costs for Product Pricing

To figure out the cost of production per unit, the cost of production is divided by the number of units produced. Once the cost per unit is determined, the information can be used to help develop an appropriate sales price for the completed item. In order to break even, the sales price must cover the cost per unit. Amounts above the cost per unit are often seen as profit while amounts below the cost per unit result in losses.

If the cost of producing a product outweighs the price that is paid for it, this may lead producers to consider temporarily ceasing operations. For example, in January 2015, the selling price of a barrel of oil fell to $40 a barrel. With product costs varying from $20 to $50 a barrel, a cash negative situation occurs for those with production costs on the higher end. Those producers may choose to cease production efforts until sale prices return to profitable levels which lowers the amount of supply available within the market and may encourage oil prices to rise based on the shifting supply and demand models.

Production Costs and Asset Recording

Once a product is complete, it can be recorded as a company asset until the product is sold. This allows the value of the product to be accounted for within financial statements and other accounting documents, and provides a way to keep shareholders informed and reporting requirements to be met.

Karnataka Class 12 Commerce Economics Production Cost Complete Notes

Karnataka Class 12 Commerce Economics Production Cost : Karnataka Class 12 Commerce Economics Production Cost is an amount that has to be paid or given up in order to get something.
In business, cost is usually a monetary valuation of (1) effort, (2) material, (3) resources, (4) time and utilities consumed, (5) risks incurred, and (6) opportunity forgone in production and delivery of a good or service. All expenses are costs, but not all costs (such as those incurred in acquisition of an income-generating asset) are expenses.

The costs related to making or acquiring goods and services that directly generates revenue for a firm. It comprises of direct costs and indirect costs. Direct costs are those that are traceable to the creation of a product and include costs for materials and labor whereas indirect costs refer to those costs that cannot be traced to the product such as overhead.

Benefits of a Strong Production Management

Fortune 500 companies aren’t just successful because of luck or market factors. Rather, they are the beneficiaries of well-planned strategies that make the best use of their resources — in other words, of strong production management teams. Production management departments help keep Fortune 500 companies on top by efficiently utilizing resources and satisfying customers.

Raw Materials

A strong production management department is able to analyze the different options available for the raw materials and resources necessary for production and to procure materials of the right quality and at the right price. The optimal materials for a company are not necessarily the highest quality or lowest price available but are instead the materials best suited for a company’s production model. Strong production management departments are able to find dependable suppliers who offer just the right materials.

Production Process

Managing the production process is the most important function of a production management department. The department must decide how many workers are necessary, which equipment should be used, and what process will provide the best product to meet customer needs. A strong production management department will streamline the production process so that it costs the least amount of money while still maintaining the necessary level of quality.

Customer Satisfaction

By ensuring a quality product, keeping costs low and delivering products in a timely manner, a successful production management team helps a company attract and retain customers. Adding to a company’s customer base brings in profits and is the primary benefit of effective management of the production process.

Investor Confidence

Because effective production management contributes to the profitability of a company, it lends that company an image of success and contributes to investor confidence. Fortune 500 companies understand this principle better than most businesses. By attracting investors, a well-managed company can attain more capital, allowing it to further improve or expand its business. In the final analysis, strong production management makes a business successful because it attracts money through both profits and investment.

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