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

📘 Short-Run Costs in Economics

In the short run, at least one factor of production is fixed (usually capital like machinery or plant size), while others (like labour or raw materials) are variable. This leads to a distinct cost structure made up of both fixed and variable costs.

🔹 1. Total Costs in the Short Run

1.1 Total Fixed Cost (TFC)

  • Definition: Costs that remain constant regardless of output level.

  • Examples: Rent, insurance, salaries of permanent staff.

  • Formula:

    TFC = Constant

1.2 Total Variable Cost (TVC)

  • Definition: Costs that vary directly with the level of output.

  • Examples: Wages (hourly), raw materials, fuel.

  • Formula:

    TVC = f(Q) (increases as output increases)

1.3 Total Cost (TC)

  • Definition: The sum of fixed and variable costs.

  • Formula:

    TC = TFC + TVC

🔹 2. Average Costs in the Short Run aka Per Unit Costs

 

2.1 Average Fixed Cost (AFC)

  • Definition: Fixed cost per unit of output.

  • Formula:

    AFC = TFC / Q

  • Behavior: Declines continuously as output increases (spreading overhead).

2.2 Average Variable Cost (AVC)

  • Definition: Variable cost per unit of output.

  • Formula:

    AVC = TVC / Q

  • Behavior: U-shaped due to increasing and then diminishing returns to the variable input.

2.3 Average Total Cost (ATC)

  • Definition: Total cost per unit of output.

  • Formula:

    ATC = TC / Q = AVC + AFC

  • Behavior: U-shaped; falls at first due to falling AFC and rising efficiency, then rises due to rising AVC.

🔹 3. Marginal Cost (MC)

✅ Definition:

The extra cost incurred by producing one more unit of output.

🔍 Formula:

MC = ΔTC / ΔQ = ΔTVC / ΔQ

Note: Since TFC is constant, the change in TC is due entirely to change in TVC.

📈 Behavior:

  • Typically U-shaped.

  • Initially decreases due to increasing marginal returns.

  • Increases due to the Law of Diminishing Returns.

🔁 Relationships Among Short-Run Costs

  • MC intersects AVC and ATC at their minimum points.

  • ATC = AVC + AFC at all output levels.

  • AFC continuously declines, causing the gap between ATC and AVC to narrow.

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