Impact of Advertising on Production Costs: Analysis and Illustration
Advertising plays a crucial role in influencing demand and indirectly affecting production costs. While it is not a direct part of production activities, effective advertising can lead to cost savings by maximizing production capacity. This article discusses the impact of advertising on production costs with detailed illustrations and examples.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
E N D
Presentation Transcript
Write Meaning, Definition and Features of Advertising Meaning:- The word advertising comes from Latin word Advertere which means to turn the mind towards . The primary goal of advertising is to attract attention of audience and induce them to purchase advertising products and services. Definition AMA defines (American Marketing Definition:- Association) Any paid form of Non personal presentation, Promotion of ideas, goods and service by an indentified sponsor.
Welcome to all for the Advertising Online lecture Chapter 3- Economic and Social aspect of adverting By Dr. Dhiraj Ovhal HOD of Commerce
Q.2 Impact of advertising on production cost with Illustration? The cost of production is comprised of three basic costs (a) Material Cost, (b) Labour Cost, and (c) Overhead Costs. Advertising is a selling and distribution cost and it does not form part of production cost. As such it will not add to the cost of production and hence, it will never increase the cost of production. Material Cost Labour cost Overhead cost
However, advertising may indirectly reduce or bring down the cost of production per unit produced (assuming that the firm is operating below optimum production capacity). This is possible, provided advertising generates demand upto the firm's optimum production capacity. The effect of advertising on production costs is illustrated as follows:
Q.2 Impact of advertising on production cost with Illustration? Normally the production activity consists Material Cost, Labour Cost and Overhead Cost and advertising is not a direct part of production activity its Indirect part of Production part. Material Cost Labour cost Overhead cost
Q.2 Impact of advertising on production cost with Illustration? Trading Account / Manufacturing Account/ Production Account. Profit and Loss A/C:- Advertising Expenses
(1) The optimum production capacity of the firm is 10,000 units in a given period. (2) Before advertising, the firm is in a position to get orders only 5,000 units i.e. 50% of its optimum production capacity (3) By spending 1,000 on advertising, the firm is in a position to generate demand for its optimum production, Le. 10,000 units. 3. The material and labour cost savings ("after advertising') is to the economies of large scale production. 4.Overhead costs remain the same upto optimum production
Q.2 Impact of advertising on production cost with Illustration? Assumption :- 1. Before Advertising the Production capacity of firm is 50 percent 2. After Advertising the Production capacity of firm is 100 percent 3. Material AND labour costs are increased but not the same proportionate increased the Unit of Production increased 4. Overhead costs are remained the same irrespective increased the Unit of Production increased
Q.2 Impact of advertising on production cost with Illustration? Particular Before Advertising After Advertising Units produced 5000 10000 Rupees Rupees Advertising Nil 1000* Expenses Material Cost 2500 4500 Labour cost 1500 2500 Overhead cost 1000 1000 Total cost of 5000 8000 production Per unit cost 1.00 0.80 * Advertising expenses not to be added to production cost
Conclusion Material Cost :- We save 500 Labour cost we save :- 500 Overhead cost :- 1000 So Advertising has Indirect impact on production cost which is reduced the price from rupees 1 to 0.80 paisa. * Advertising expenses not to be added to production cost
Conclusion Since advertising is a part of selling and distribution costs, it will Naturally not add to the total selling and distribution costs. However, advertising may reduce the cost per unit distributed, provided the benefit of large scale selling (due to advertising) is more than the amount spent on advertising. claim i.e. advertising can reduce the cost per unit distributed 10,000 units be justified justified from the fact that the sales force required may remain.
Conclusion 5000 Unit 10000Unit Material 2500 4500 5000 500 Cost Labour cost 1500 2500 3000 500 Overhead 1000 1000 2000 1000 cost 2000 * Advertising expenses not to be added to production cost
Attendance Link https://forms.gle/U4Da9ykpniL3tpCdA (Mention date at last point)
