Estimating Cost a company will like to charge a price that covers its cost of producing, distributing and selling the product, including a fair return for its efforts and risk.

A company’s cost takes two forms, fixed and variable. Fixed cost are the costs that do not vary with production of sales revenue. Examples of fixed costs includes monthly rent, interest etc.

Variable costs vary directly with the level of production. These costs tend to be constant per unit produced. They are called variable because their with the number of unit produced.

Total cost consists of the sum of the fixed and variable costs for a given level of production. Management will like to charge a price that will be at least cover the total production costs at a given level of production.