Impact of Advertising on Production Costs: Analysis and Illustration

 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:-
 
       
Definition AMA defines
 
(American Marketing
                                                                             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
By
Dr. Dhiraj Ovhal
HOD of Commerce
Chapter 3- Economic and Social aspect of adverting
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.
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.
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?
                        * Advertising expenses not to be added to production cost
Conclusion
                        * 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
                        * Advertising expenses not to be added to production cost
 
Thank You
 
Attendance Link
https://forms.gle/U4Da9ykpniL3tpCdA
(Mention date at last point)
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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.


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  1. 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.

  2. Welcome to all for the Advertising Online lecture Chapter 3- Economic and Social aspect of adverting By Dr. Dhiraj Ovhal HOD of Commerce

  3. 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

  4. 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:

  5. 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

  6. Q.2 Impact of advertising on production cost with Illustration? Trading Account / Manufacturing Account/ Production Account. Profit and Loss A/C:- Advertising Expenses

  7. (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

  8. 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

  9. 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

  10. 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

  11. 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.

  12. 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

  13. Thank You

  14. Attendance Link https://forms.gle/U4Da9ykpniL3tpCdA (Mention date at last point)

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