Total Cost Mngt – Great Business Opportunity.

(TCM) is a systematic and structured approach to understand the costs of an organization, with the aim of providing a holistic framework to control, reduce and eliminate costs. Cost management is a philosophy, an attitude, and a set of techniques to create more value at lower cost. In this fast space competitive scenario, Cost Management information increases customer value.

?Some of the important tools and techniques of Total Cost Management are as follows:

?- Based Costing

- Based Management

- Target Costing

?The term “total cost” refers to the overall cost of production that involves both fixed and variable components of cost. The formula for total cost can be derived by adding the total fixed cost?to?the total variable cost. by the number of goods produced, it is represented as,

Total Cost =?Total Fixed Cost + Average Variable Cost Per Unit * Quantity of Units Produced

Formula explanation for total cost can be derived by using the following five steps:

1)?Determine the cost of production which is fixed in nature that cost which do not change with the change in the level of production. Some examples of the fixed cost of production are selling expense, rent expense, depreciation cost.

2)?Determine the average variable cost per unit for those expenses which are dependent on the level of production. Some examples of the variable cost of production are labor cost, raw material cost.

3)?Determine the level of production or the number of units produced.

4)?Finally, the formula for total cost can be derived by adding the product of average variable cost per unit (step 2) and quantity of units produced (step 3) with the total fixed cost of production (step 1) as shown below.

Total cost of production is important to understand from the perspective of production managers because it helps in the assessment of overall profit margin at a different level of production. Nevertheless, the total fixed cost is also equally important because it is the sum of total fixed cost and total variable cost which when deducted from the revenue will give the company profit. As such, the formula for total cost is extremely useful for all business.

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