Abstract

Costs of a firm are the expenses incurred for the production of outputs. Labor wages, raw material prices, rent for warehouse(s), plant and factory expenses, interest on borrowed money are some examples of the cost of production. Lower the cost of production, higher the profit margin of the firm. But there are key factors that affect the cost of production, such as plant size, output level, price of inputs, technology, managerial efficiency, stability in production, and more.

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What is Cost?

A firm's cost means the cost of production, generally taken as monetary expenses. To produce goods every firm makes use of various factor and non-factor inputs. The amount spent on the use of these inputs is called the cost of production. The cost of production can be labor wages, raw material prices, rent for warehouse(s), plant and factory expenses, interest on borrowed money, and more.

Determinants of Cost

There are certain determinants of cost or we can say these are the factors that affect the valuation of cost. Following are the determinants:

1. Price of inputs

2. Size of plant

3. Output level

4. Factorial productivity

5. Constancy in production

6. Lot size

7. The optimum level of capacity

8. Time

9. Laws of returns

10. Technology

11. Government incentives

12. Experience

13. Process of range of products

14. Supply chain and logistics

15. Managerial efficiency

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