Course Content
Accounting Principles and Standards, Preparation of Financial Statements
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Accounting Concepts and Principles: Theoretical Framework
Accounting Standards : IFRS, IAS & GAAP
Responsibilities of IASB
Indian Accounting Standards (Ind AS)
Types of Account
Types of Expenditure
Financial Statement Analysis: Ratio Analysis, Funds Flow and Cash Flow Analysis, DuPont Analysis
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Financial Statements List
Important Terms
Ratio Analysis
Funds Flow Analysis
Flow of Funds
Cash Flow Analysis
Ind AS 7: Cash Flow Statement
DuPont Analysis
Preparation of Cost Sheet, Marginal Costing, Cost-Volume Profit Analysis
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Important Principles in Cost Accounting
Implicit Cost & Explicit Cost; Accounting Profit & Economic Profit
Law of Diminishing Returns
Economic Theory of Production
Production Theory in Micro Economics
Special Types of Costs
Cost Theory in Economics
Short-Run Costs in Perfect Competition
Marginal Revenue & Profit Maximizing Rule
Shutdown Rule in Short Run
Short Run in Monopoly
Preparation of Cost Sheet
Fixed Costs (F.C.) , Variables Costs ( V.C.) and Contribution Margin
P/V ratio ( Profit / Volume ratio)
Break Even Point (B.E.P.) & Margin of Safety (M.O.S.) & Law of Diminishing Return
Cost-Volume Profit Analysis
Standard Costing & Variance Analysis
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Inventory Valuation Method
Standard Costing
Material Variance
Volume Variance
Overhead Absorption Rate
Overhead Expenditure Variance
Variable Overhead Cost Variance
Overhead Spending Variance
Labour Efficiency Variance
Unit IV: Managerial Accounting

📘 Cost Theory in Economics — A Textbook-Style Explanation

Cost Theory in economics is a framework that analyzes how firms incur and manage costs in the process of producing goods and services. It explains the nature, types, and behavior of costs as output levels change, and helps firms make efficient production and pricing decisions.

🔹 1. Meaning of Cost in Economics

In economics, cost refers not just to monetary expenditures, but also to opportunity costs—the value of the next best alternative foregone.

Thus, economic cost = explicit cost + implicit cost.

🔹 2. Cost Structures Over Time: Short Run vs Long Run

📍 Short Run: The short run is a period during which at least one factor of production is fixed, typically capital (e.g., machinery, plant size, buildings). Other inputs, like labor and raw materials, can be varied to adjust output.

  • At least one input is fixed (usually capital or land).

  • Firms can only adjust variable inputs like labor or materials.

  • Costs include:

    • Total Cost Curve

      • Total Fixed Cost (TFC)

      • Total Variable Cost (TVC)

      • Total Cost (TC) = TFC + TVC

    • Per Unit Costs

      • Average Fixed Cost (AFC)
      • Average Variable Cost (AVC)
      • Average Total Cost (ATC),
      • Marginal Cost (MC), ,  

📍 Long Run:

  • All inputs are variable.

  • Firms can scale production up or down completely.

  • Focuses on Long-Run Average Cost (LRAC) and Long-Run Marginal Cost (LRMC).

  • Examines economies and diseconomies of scale.

🔹 6. Applications of Cost Theory

  • Determining optimal output level (where MC = MR)

  • Pricing decisions (especially in competitive vs monopoly markets)

  • Expansion planning (short run vs long run)

  • Profitability analysis (economic profit vs accounting profit)

✅ Conclusion

Cost theory is a foundational element of microeconomics that helps explain how firms make production and financial decisions based on the behavior of costs. It bridges the gap between resource use and pricing strategy, helping firms operate efficiently in both the short and long run.

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