What Is Total Cost Management?

Total cost is also called "life cycle cost". Refers to the cost of a product from development, production, use, to elimination. Generally expressed as C. Life cycle costs include manufacturing costs and use costs. The manufacturing cost includes the cost of the product from the beginning of the user's request for development, through design, trial production to production, and is represented by G. The use cost includes the energy consumption, maintenance cost, management cost and other consumption costs during the use of the product, which is represented by c2. The total cost c is then equal to c1 ± c2. The focus of value engineering is to reliably achieve the necessary functions of the product at the lowest life cycle cost. Therefore, we must not only pay attention to reducing manufacturing costs, but also pay attention to reducing use costs. Only when the total cost of the product is reduced can it increase the competitiveness of the product and reflect the provision of more accumulation to the entire society. ^[1]

total cost

Total cost is also called "life cycle cost". Refers to the cost of a product from development, production, use, to elimination. Generally expressed as C. Life cycle costs include manufacturing costs and use costs. The manufacturing cost includes the cost of the product from the beginning of the user's request for development, through design, trial production to production, and is represented by G. The use cost includes the energy consumption, maintenance cost, management cost and other consumption costs during the use of the product, which is represented by c2. The total cost c is then equal to c1 ± c2. The focus of value engineering is to reliably achieve the necessary functions of the product at the lowest life cycle cost. Therefore, we must not only pay attention to reducing manufacturing costs, but also pay attention to reducing use costs. Only when the total cost of the product is reduced can it increase the competitiveness of the product and reflect the provision of more accumulation to the entire society. ^[1]

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Through the calculation and analysis of the total cost, you can understand the total expenditure during the calculation period, and compare the total cost with income, profit, and net profit to obtain a meaningful analysis index.

Total cost savings or overruns, often for analysis

Total cost (TC) is the sum of total fixed cost (TFC) and total variable cost (TVC). Therefore, the total cost curve is above the total variable cost curve, and the vertical distance between the two curves is equal to the value of the total fixed cost. The characteristics of the total cost curve completely depend on the characteristics of the total variable cost curve. Therefore, as the output increases, the total cost curve also increases first and then gradually.

TC = TVC + TFC

T V C = C ( Q )

T F C = C 0

T C = C ( Q ) C 0

Figure 2 Total fixed costs

Total variable cost is referred to as TVC (total variable cost), which refers to the total cost of variable inputs in a certain production period. TVC = f (Q). The curve of variable costs is shown in Figure 1.

Total fixed cost is referred to as TFC (total fixed cost), which refers to the total cost of constant input during a certain production period. Since the constant input is a constant quantity in production, the total fixed cost is a constant, that is, there is no relationship between the fixed cost and the output quantity change in the short term. The fixed cost curve is a horizontal line, as shown in Figure 2.