Final answer:
Standard costs comprise the quantity of an input such as labor or materials, and the cost per unit of that input, used to determine total production costs alongside fixed and variable costs. Businesses use average and marginal cost measurements to analyze cost efficiency.
Step-by-step explanation:
Standard costs are comprised of two elements: the quantity of input and the cost per unit of input. The quantity of input refers to the amount of resources (such as labor, materials, etc.) required to produce an item or service. The cost per unit of input is the price that must be paid for each unit of these resources.
Together, these inputs combined with their associated factor payments (such as wages, material costs, etc.) determine the cost of production for a given quantity of output. The total production cost is the sum of the fixed costs, which do not change regardless of production levels (like rent for factory space), and variable costs, which fluctuate with the level of production.
Moreover, businesses often assess their cost efficiency by examining the average cost (the total cost divided by the quantity of output) and the marginal cost (the cost of producing one additional unit of output), which provide different insights into the cost structure and are vital for decision-making.