TC stands for Total Cost. Before entering fully into the meaning of the term total cost, it is necessary to proceed to discover the etymological origin of the two words that give it shape:
-Cost, in the first place, we have to explain that it derives from the Latin verb “constare” which can be translated as “squaring” or “reaching an agreement”.
-Total, on the other hand, also comes from Latin. In his case, it is a word that emanates from the sum of two clearly differentiated components: the noun “totus”, which means “everything”, and the suffix “-al”, which is used to indicate “related to”.
According to abbreviationfinder, cost is the economic outlay that is made in order to maintain or acquire a product or service. The idea of total, on the other hand, refers to that which encompasses everything of its kind or that is general.
Total cost is made up of fixed costs plus variable costs.
What is the total cost
The concept of total cost, in this framework, refers to all the costs of a company. It is the sum of variable costs (which change when the volume of production changes) and fixed costs (which remain stable beyond the production level).
Take the case of a hamburger restaurant. This establishment has fixed costs such as the rent for its building and employee salaries, and variable costs such as raw materials: bread, hamburgers, dressing, etc. The sum of all these costs (rent, salaries, raw materials) constitutes the total cost of the restaurant to stay in operation.
The wages of the workers, the rent of a premises and the purchase of raw materials are part of the total cost of a company.
All business ventures are intended to generate economic benefits (profits). Obtaining benefits is linked to total costs since, if production costs are very high, the income obtained from sales is hardly enough to make a profit.
If a company has total costs of $50,000 per month and receives revenue of $45,000 in the same period, it will make a loss. On the other hand, if you manage to reduce your total costs to $20,000 and still generate revenue of $45,000, you will make a profit of $25,000 per month. Another possibility to maximize profits is to raise sales prices, without the need to modify costs.
Total Cost Components
Therefore, we can state that the components of the total cost are the production costs (raw material, personnel, machinery, facilities, tools, salaries, etc.), the administrative, distribution and financial costs, among others.. Among these others are those related to the commercial field, manufacturing, engineering, middle management…
It is important to be clear that, at all times, it is necessary to differentiate what is the total cost of the so-called marginal cost. The latter becomes the change that occurs with respect to the total cost if the production changes. That is to say, it comes to establish how the total cost of a company varies if it comes to modify what its level of production is. Thus, a single unit of more that is carried out will already suppose a change in what is the aforementioned total cost.