# Total Cost Formula Economics

Finance Formulas / July 22, 2018 / Aniyah Booth

Total costs are made up of fixed costs, those costs that are required for production but do not change based on output, and variable costs, those costs that increase or decrease as output increases or decreases. For example, if an organization manufactures desktop computer screens, the glass screens, plastic casings, electrical boards and wires, and screws are all variable costs. The cost of the facility they are made in and the equipment used to assemble the monitors are fixed costs. It doesn't matter if one monitor is made or 100, the cost of the facility and equipment will remain fixed.

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For example, an investor starts her own business with \$100,000 and earns \$120,000 in profits during the first year. Her accounting profit is \$20,000. But that same year, she could have earned an income of \$45,000 working as an employee for ABC Corporation. The investor’s economic profit for the year is actually a loss of \$25,000.

You can use the bond yield formula to determine the return you’ll realize by holding a bond to maturity. The required yield, conversely, is the return a bond must offer to make it worthwhile to investors, and it’s usually the same yield offered by other plain vanilla bonds in the market with similar credit quality and maturity. Once you’ve decided on the required yield, you can figure out the yield.

The accounting equation, also known as the balance sheet equation, is written as Assets = Liabilities + Equity and underpins the balance sheet's foundation. The accounting equation is the foundation of double entry accounting, and displays that all assets are either financed by borrowing money or paying with the money of the company's shareholders.

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