Final answer:
Product costs that have become expenses appear on the Income Statement. Understanding the relationship between production and costs and evaluating cost patterns are essential for determining potential profit.
Step-by-step explanation:
Product costs that have been incurred during the production of goods and which have become expenses can be found on the Income Statement. Expenses are part of the calculation to determine average profit, which is the profit earned on average over a given period. It’s important to both understand the relationship between production and costs and to evaluate patterns of costs to determine potential profit for a business. This evaluation can inform business decisions related to production levels and pricing strategies in order to optimize profitability.
Moreover, factors of production such as labor, materials, and overhead translate into various costs for a business. These include Total Cost (TC), which is the total economic cost of production and is made up of Fixed Costs (FC), that are not dependent on the level of goods or services produced by the business, and Variable Costs (VC), which vary directly with the level of production. Short-run costs can be analyzed in terms of these components to assess the cost behavior and guide business decisions.