How Do You Calculate The Average Cost Of Production?
The cost of production allows a company to determine how much cost goes into a product before sales. Cost of production is the total cost of producing all inventory for the year. This is made up of both direct and indirect costs, such as labor and overhead costs. Firms use cost of production to determine how efficiently they are producing their products. If a firm is efficient and keeps a low cost of production, they will increase their profit from each sale. If a firm is inefficient and has a higher cost of production, the firm will decrease their profit from each sale. In addition, by knowing the cost of producing a specific product, the firm will be better capable of determining a selling price for that product. Add together all costs during the year associated with production. This includes fixed costs, such as rental space used to produce the product, and total variable costs, such as raw material costs. For example, Firm A spent $50,000 for rent on a production facility, $4000 fo
