Get the answer of: What is meant by the Cost Schedule of a Firm? Also learn about the format of cost schedule.

A cost schedule is a table showing the total costs of production at different levels of output and from which marginal costs and average costs can be calculated and cost curves drawn. While preparing such a schedule we can assume that the cost-determining factors such as method(s) of production, the prices of productive factors, etc. all constant. In other words, assuming the cost-determining factors constant a cost schedule of a firm shows “the alternative cost of production at which various alternative outputs can be produced.”

Such a schedule is given below:

The above cost schedule shows the different amount of total cost for producing the different amounts of output (i.e., Rs.20 for 1 unit, Rs.35 for 2 units, Rs.45 for 3 units and so on). Here the total cost has been increasing due to the production of larger units, not due to change in any cost- determining factors. When the cost-determining factors change so as to change the cost, separate cost schedules are to be prepared.

It is to be noted that a firm is to prepare the short-run cost schedule and the long-run cost schedule separately. A short-run schedule is relevant to a situation with a given plant, while a long-run schedule shows the volumes (rates) of output in a time interval long enough to allow complete adjust­ment in factors so as “to obtain the optimum factor combination for each output level.”

Determinants of Cost:

The cost of producing any given amount of output by a firm depends on many factors.

The most important of such factors are the following:

(a) Quantities of Resources and their Combinations:

The cost to the firm of producing any output primarily depends upon the physical quantities of actual resources or factor services, such as labour, materials, machine hours, and so forth, used in production. Thus, the cost of producing a ton of steel depends upon the quantities of iron ore, limestone, coal, blast furnace, etc. used in its production.

As the larger output requires the greater amount of resources, the total cost for larger output becomes large. And, the smaller output requires the smaller resources; the total cost for small output becomes small. Besides, the total cost of producing a given amount of output becomes small when these resources are combined in optimum proportions.

(b) Technique of Production:

A firm can produce at low cost when it produces with the new and improved techniques of production. But, pro­duction with old and out-dated technique involves higher cost. Profit max­imisation requires the use of the particular technique of production which would allow the optimum combination of factors. In the short period, the optimum combination for any given level of output is the least- cost combination possible with the fixed factor units.

But, this may not be the absolute optimum combination if all the factors could be adjusted. Over the longer period, all the factors can be varied, and so the firm is free to select the production-technique which would ensure the absolute optimum com­bination of factors. It is to be mentioned here that any change in the production technique would cause a change in the cost schedule as well as a shift of the cost curves.

(c) Prices Paid for the Productive Factors:

The prices paid for the productive factors employed also influence cost. The higher prices for labour, materials or power make cost higher, while their lower prices keep cost low. Any change in factor input prices causes a change in the cost schedule.

(d) Efficiency of Factor Units:

Cost level are also affected by the efficiency of factor units—the quality of natural resources employed, the types of capital goods available and the skill of all types of labour, including managerial personnel. The better the quality of the natural resources, the lower will be the cost of production.

(e) Other Determinants:

Finally, cost levels are also influenced by the factors such as the government’s policy of allocating raw materials to business firms, indirect taxes, availability of resources, such as coal.