Production costs: their types, dynamics. The main thing is the analysis of economic activity

Costs You can call any expenditure of resources accountable. Those costs that are directly necessary for the production of a good or service are considered production costs.

The essence of costs is intuitively clear to almost everyone, but a significant part of the effort is spent on their assessment, calculation and distribution economic science. This happens because assessing the effectiveness of any process is a comparison of the amount of expenses incurred with the result obtained.

For economic theory, the study of costs means their determination and classification by type, origin, items and processes. Economic practice puts specific numbers into the formulas proposed by the theory and gets the desired result.

Concept and classification of costs

The most in a simple way cost studies will be their summation. The resulting amount can be subtracted from the revenue to determine the size, you can compare the amount of expenses for similar processes to determine a more economical option, etc.

To model economic situations, create formulas, evaluate business processes and their results, costs must be classified, i.e. divided according to certain characteristics and combined into typical groups. There is no rigid classification system; it is more convenient to consider costs based on the needs of a particular study. But some frequently used options can be considered a kind of rules.

Especially often costs are divided into:

Constant - independent of the volume of production in a specific period;
Variables - the size of which is directly tied to the amount of output.

Note that this division is valid only when considering a relatively short-term period. In the long run, all costs tend to become variable.

In relation to the main production process, it is customary to allocate costs:

For main production;
For auxiliary operations;
For non-production expenses, losses, etc.

If we imagine costs as economic elements, then we can distinguish from them:

Expenses for main production (raw materials, energy, etc.);
Labor costs;
Social contributions from wages;
Depreciation deductions;
Other expenses.

A more thorough, detailed way to find out the concept, composition and types of production costs would be to compile a cost estimate for the enterprise.

According to costing items, costs are divided into:

Purchased raw materials and materials;
Semi-finished products, components, production services;
Energy;
Labor costs for key production personnel;
Tax deductions from wages in this category;
from the same salary;
Costs of preparation for production development;
Shop expenses - a category of costs for operations associated with a specific production division;
General production costs are expenses of a production nature that cannot be fully and accurately attributed to specific departments;
General expenses - expenses associated with the provision and maintenance of the entire organization: management, some support services;
Commercial (non-production) expenses - everything related to advertising, product promotion, after-sales service, maintaining the image of the enterprise and products, etc.

Another important type of cost, regardless of the analysis criteria, is average costs. This is the amount of costs per unit of output; to determine it, the volume of costs is divided by the number of units produced.

And the cost of each new unit of production when the volume of output changes is called marginal cost.

Knowing the size of average and marginal costs is necessary for making effective solutions about optimal volume release.

Methods for calculating costs

Formulas and graphs

A general idea of the cost classification system and the presence of expenses in certain areas does not provide practical results when assessing a specific situation. Moreover, even building models without exact numbers requires tools to illustrate the dependencies between certain elements of the cost system and their impact on the final result. Formulas and graphic images help to do this.

By putting the appropriate values into the formulas, it becomes possible to calculate a specific economic situation.

The number of costing formulas is difficult to determine precisely; each formula appears along with the situation it describes. An example of one of the most common would be the expression of total costs (calculated in the same way as total). There are several variations of this expression:

Total costs = fixed costs + variable costs;

Total costs = costs for main processes + costs for auxiliary operations + other costs;

In the same way, you can imagine the total costs determined by costing items; the only difference will be in the name and structure of the cost items. At the right approach and calculation application to the same situation different types formulas for calculating the same value should give the same result.

To represent the economic situation in graphical form, you should place points corresponding to the cost values on the coordinate grid. By connecting such points with a line, we get a graph of a certain type of cost.

This is how the graph can illustrate the dynamics of changes in marginal costs (MC), average total costs (ATC), average variable costs (AVC).

Lecture: PRODUCTION COSTS AND PROFIT OF A FIRM.

Production costs: concept and types.

The behavior of the company in the short and long term.

Revenues and profits of the company.

Production costs: concept and types.

If the buyer, when purchasing a product on the market, is primarily interested in its usefulness, then for the seller (manufacturer), production costs occupy a central place. In microeconomics, the time factor plays an important role. Therefore, before characterizing costs, we introduce the concepts of short-term and long-term periods of time.

Short-term (or short) period- this is a period of time during which some factors of production are constant, while others are variable. Fixed factors of production include resources such as the overall size of buildings and structures, the number of machines and equipment used, etc., as well as the number of firms operating in the industry . It is assumed that the opportunities for free access of new firms to the industry in the short term are very limited. In the short term, the company has the opportunity to vary only the degree of utilization of production capacity (by changing the length of working hours, the amount of raw materials used, etc.).

Long-term (long) period- this is the period of time during which all factors are variable. In the long run, a firm has the opportunity to change the overall size of buildings and structures, the number of machines and equipment used, etc., and the industry - the number of firms operating in it. The long run is the period during which barriers to entry and exit from an industry are overcome.

Production costs- the total costs of producing a product or service in monetary terms.

Production costs are divided into:

individual- individual entrepreneur, company;

public- for production of products, environmental protection, training of qualified work force, scientific developments;

production- for the production of goods and services;

appeals- related to the sale of manufactured products;

external (explicit)- resources purchased by the company (accounting costs);

internal (implicit, or implicit)- the company’s own resources (not reflected in the financial statements).

Internal and external costs are economic costs of the company. A firm's economic costs also include normal profit- this is the minimum profit that keeps an entrepreneur in a given industry.

Costs are classified in various ways. Thus, from the point of view of an individual enterprise (firm), a distinction is made between explicit and implicit costs.Explicit (external) costs - cash payments that an enterprise (firm) makes to suppliers of production factors in the case when these factors do not belong to it. Explicit costs include wages paid to employees, commissions paid to trading firms, payments to banks and other financial service providers, transportation costs, depreciation of equipment, costs of raw materials and supplies, etc.These are accounting costs. Implicit (implicit, internal) costs - the cost of services of factors of production that are used but not purchased, or this is the opportunity cost of using resources owned by the owners of firms that are not received in exchange for explicit (monetary) payments. Thus, if the owner of a small company works alongside the employees of this company without receiving a salary, then he thereby refuses to receive a salary by working somewhere else. Implicit costs are usually not reflected in financial statements. Establishing the distinction between explicit and implicit production costs is necessary to understand the types of profit.Normal profit - this is the minimum payment that the owner of the company must receive so that it makes sense for him to use his entrepreneurial talent in this field of activity. Lost income from the use of own resources and normal profit in total form internal costs. That's why,economic costs is the sum of explicit and implicit costs.

Production costs in the short term are divided into:

constant (FWITH)- their value does not change depending on changes in production volume. They exist even if the company does not produce anything. Includes: payments of interest on loans and borrowings, rent, depreciation, property tax, insurance premiums, salaries to management personnel and specialists of the enterprise (firm);

variables (V.C.) - vary directly depending on the volume of production. They are associated with the costs of purchasing raw materials and labor. The dynamics of variable costs is uneven: starting from zero, as production grows, they initially grow very quickly; then, as production volumes further increase, the factor of economy in mass production begins to affect, and the growth of variable costs becomes slower than the increase in production. Subsequently, however, when the law of diminishing returns comes into play, variable costs again begin to outpace production growth. In the long run, all costs are variable;

gross (total) (TS) is the sum of fixed and variable costs for each given volume of production (TC = FC + VC). A graphical representation of FC, VC, TC is shown in Fig. 1;

WITH

VС

Fig.1. General, fixed and variable costs.

average general (ATS or AC)- costs per unit of production (AC = TC / Q). At first, the average costs are quite high. This is due to the fact that large fixed costs are distributed over a small volume of production. As production increases, fixed costs fall on more and more units of output, and average costs quickly fall to a minimum at point K (Fig. 2). As production volume grows, the main influence on the value of average costs begins to be exerted not by fixed, but by variable costs. . Therefore, due to the fact that as production volume increases, the profitability of the resources used decreases, the curve begins to go up;

average variables (AVWITH)- variable costs per unit of production;

average constants (AFWITH)- fixed costs per unit of output;

limit (MS)- the cost of producing an additional unit of output. They show how much it will cost the enterprise to increase production volume by one unit or how much can be “saved” by reducing production volume by this last unit (MC = TCn – TCn- 1 = ΔTC / ΔQ = ΔVC / ΔQ).

The behavior of the company in the short and long term.

There is a close relationship between average variable cost, average total cost, and marginal cost. The marginal cost curve MC (Fig. 2) intersects the average cost curve AC at point K, and the average variable cost curve ABC at point B, which have a minimum value.

WITH MS AU

A.F.C.

Rice. 2. The relationship between average and marginal costs.

This can be explained as follows: if the marginal costs MC are less than the average costs AC, the latter decrease (per unit of output). This means that average total cost will fall as long as the marginal cost curve is below the average cost curve. Average costs will rise as long as the marginal cost curve is above the average total cost curve. The same can be said in relation to the curves of marginal and average variable costs - MC and AVC. As for the average fixed cost curve AFC, there is no such dependence here, because the marginal and average fixed cost curves are not related to each other.

Initially, marginal cost will be lower than average and average variable costs. However, due to the law of diminishing returns, they will begin to exceed both of them as production progresses. As a result, it becomes obvious that it is not economically profitable to further expand production.

Analysis of production costs in the long run is based on the fact that only variable costs change, i.e. dependent on production volume.

For long term The concepts of total and average costs are relevant, and here it is no longer possible to divide them into constant and variable. All costs of an enterprise (firm) are variable.

Figure 3 shows the long-term average cost curve (AC L), which consists of sections of short-term cost curves (AC 1, AC 2, etc.) in relation to various sizes of those enterprises that can be built. It shows the lowest cost per unit of production with which any volume of production can be achieved, provided that the enterprise has had sufficient time at its disposal to make the necessary changes in the size of the enterprise. Consequently, the firm determines the maximum volume of production at the lowest cost.

A.C. L

Q 1 Q 2 Q 3 Q 4 Q 5 Q

Fig.3. Long-run average cost curve.

Revenues and profits of the company.

Using resources for the production and sale of products, the entrepreneur receives income, which depends on the volume of products sold and market prices.

There are total, average and marginal income. Total (gross) income - the total amount of cash revenue received by a company from the sale of its products. The amount of total income depends on the volume of output (sales) and sales prices. Average income- this is the amount of cash revenue per unit of products sold. Marginal Revenue- income received as a result of the production and sale of an additional unit of product. Comparison of marginal revenue and marginal costs is used by commodity producers to make decisions about production development. As long as marginal revenue exceeds marginal cost and gross revenue exceeds gross cost, increasing output generates profit.

Profit is the difference between income on the one hand and costs, including mandatory payments to the state (taxes and similar payments), on the other.

Profit performs the following functions:

1) economic, which lies in the fact that profit is a reward to the owners of capital for providing it to organize the production of a product;

2) risky, which consists in rewarding the entrepreneur for the risks that always accompany entrepreneurial activity;

3) functional, which consists of rewards for technical, product and organizational innovations aimed at improving production.

The main forms of profit are economic and accounting profit . Accounting profit- part of the company’s income that remains from the total revenue after compensation for explicit (external, accounting) costs, i.e. fees for supplier resources. With this approach, only explicit costs are taken into account and internal (hidden) costs are ignored. Economic or net profit- part of the company’s income that remains after subtracting all costs (external and internal, including the entrepreneur’s normal profit) from the total income of the company.

The market mechanism also uses other forms of profit: gross, balance, normal, marginal, maximum, monopoly. Gross profit- the company’s total profit from sales and non-operating income . Balance sheet profit- the total amount of profit minus the losses incurred by the company (profit from sales plus net non-operating income (fines received minus those paid, interest on a loan received minus those paid, etc.)). Marginal profit is defined as the difference between marginal revenue and marginal cost. This is the profit per additional individual unit of production. For the company, this is a benchmark for increasing production volume. Maximum profit- the highest profit when comparing gross income and gross costs. The firm will receive the maximum absolute amount of profit at such a volume of production when gross income exceeds gross costs by the maximum amount. Monopoly profit- this is the profit received by a monopolist firm on the basis of limiting competition, respectively, production of products with an increase in price. Monopoly profits are typically higher than average profits and are obtained through the redistribution of income among firms.

Every business is interested in maximizing its profits. There are two ways to determine the possible maximum profit of an enterprise.

1). The first way is to compare marginal revenue (MY) and marginal cost (MC) of a product. Obviously, marginal revenue will decrease as the volume of production of a good increases. The reason for this is the law of demand, since the more goods we want to sell, the more low prices must be installed on this product. Marginal costs will gradually increase, since the cost of inputs for production will increase as the enterprise increases the demand for them (the greater the demand, the higher the price with constant supply). In addition, the productivity of resources decreases, since initially any enterprise uses the highest quality and most productive factors of production, and then all the other, less productive ones.

WITH MS

Rice. 3. The relationship between average and marginal costs.

Obviously, as long as marginal revenue is greater than marginal cost, gross (total) profit will increase and reach a maximum at the point of intersection (equality) of marginal revenue and marginal cost. When marginal cost becomes greater than marginal revenue, total profit will begin to decline. Therefore, the condition for maximum profit will be the equality of marginal revenues and marginal costs.

M.Y.= M.C.

2) The second method is based on dividing costs into fixed (FC) and variable (VC). If you need to determine the volume of production that is needed for the enterprise to break even (profit is zero), then you can use the formula:

Q= F.C./(P- AVC)

Since the difference between P (price of a product) and AVC (average variable cost per unit of product) gives income without taking into account fixed costs per unit of product (it is called marginal income), it is obvious that profit will be zero when the total amount of marginal income Q(P-AVC) will be equal to fixed costs.

Q= (FC+In)/(P- AVC)

In this case, the resulting volume must be compared with the market capacity, that is, estimate the amount of money that consumers are willing to spend on a given product, and divide this amount by the price of the product.

In practice, the concept of production costs is usually used. This is due to the difference between the economic and accounting meaning of costs. Indeed, for an accountant, costs represent actual amounts of money spent, costs supported by documents, i.e. expenses.

Costs as an economic term include both the actual amount of money spent and lost profits. By investing money in any investment project, the investor is deprived of the right to use it in another way, for example, to invest it in a bank and receive a small, but stable and guaranteed interest, unless, of course, the bank goes bankrupt.

The best use of available resources is called opportunity cost or opportunity cost in economic theory. It is this concept that distinguishes the term “costs” from the term “costs”. In other words, costs are costs reduced by the amount of opportunity cost. Now it becomes obvious why in modern practice it is costs that form the cost and are used to determine taxation. After all, opportunity cost is a rather subjective category and cannot reduce taxable profit. Therefore, the accountant deals specifically with costs.

However for economic analysis opportunity costs are of fundamental importance. It is necessary to determine the lost profit, and “is the game worth the candle?” It is precisely based on the concept of opportunity costs that a person who is able to create his own business and work “for himself” may prefer a less complex and stressful type of activity. It is based on the concept of opportunity cost that one can make a conclusion about the feasibility or inexpediency of making certain decisions. It is no coincidence that when determining the manufacturer, contractor and subcontractor, a decision is often made to declare open competition, and when evaluating investment projects in conditions where there are several projects, and some of them need to be postponed for a certain time, the lost profit coefficient is calculated.

Fixed and variable costs

All costs, minus alternative ones, are classified according to the criterion of dependence or independence on production volume.

Fixed costs are costs that do not depend on the volume of products produced. They are designated FC.

Fixed costs include expenses for paying technical personnel, security of premises, advertising of products, heating, etc. Fixed costs also include depreciation charges (for the restoration of fixed capital). To define the concept of depreciation, it is necessary to classify the assets of an enterprise into fixed and working capital.

Fixed capital is capital that transfers its value to finished products in parts (the cost of the product includes only a small part of the cost of the equipment with which production is carried out of this product), and the value expression of the means of labor is called fixed production assets. The concept of fixed assets is broader, since they also include non-productive assets that may be on the balance sheet of an enterprise, but their value is gradually lost (for example, a stadium).

Capital that transfers its value to finished product during one revolution, spent on the purchase of raw materials and materials for each production cycle called negotiable. Depreciation is the process of transferring the value of fixed assets to finished products in parts. In other words, equipment sooner or later wears out or becomes obsolete. Accordingly, it loses its usefulness. This also happens due to natural reasons (use, temperature fluctuations, structural wear, etc.).

Depreciation deductions are made monthly based on legally established depreciation rates and the book value of fixed assets. Depreciation rate - the ratio of the amount of annual depreciation to the cost of fixed assets production assets, expressed as a percentage. The state establishes different depreciation standards for separate groups fixed production assets.

The following methods of calculating depreciation are distinguished:

Linear (equal deductions over the entire service life of the depreciable property);

Declining balance method (depreciation is accrued on the entire amount only in the first year of equipment service, then accrual is made only on the non-transferred (remaining) part of the cost);

Cumulative, based on the sum of the numbers of years beneficial use(a cumulative number is determined that represents the sum of the numbers of years of useful use of the equipment, for example, if the equipment is depreciated over 6 years, then the cumulative number will be 6 + 5 + 4 + 3 + 2 + 1 = 21; then the price of the equipment is multiplied by the number of years of useful use and the resulting product is divided by a cumulative number, in our example, for the first year, depreciation charges for the cost of equipment of 100,000 rubles will be calculated as 100,000x6/21, depreciation charges for the third year will be, respectively, 100,000x4/21);

Proportional, in proportion to production output (depreciation per unit of production is determined, which is then multiplied by the volume of production).

In the context of the rapid development of new technologies, the state can use accelerated depreciation, which allows for more frequent replacement of equipment at enterprises. In addition, accelerated depreciation can be carried out within state support small businesses (depreciation deductions are not subject to income tax).

Variable costs are costs that directly depend on the volume of production. They are designated VC. Variable costs include the costs of raw materials, piecework wages workers (it is calculated based on the volume of products produced by the employee), part of the cost of electricity (since electricity consumption depends on the intensity of equipment operation) and other expenses depending on the volume of output.

The sum of fixed and variable costs represents gross costs. Sometimes they are called complete or general. They are designated TS. It is not difficult to imagine their dynamics. It is enough to raise the variable cost curve by the amount of fixed costs, as shown in Fig. 1.

Rice. 1. Production costs.

The ordinate axis shows fixed, variable and gross costs, and the abscissa axis shows the volume of output.

When analyzing gross costs, it is necessary to pay attention to Special attention on their structure and its changes. Comparing gross costs with gross income is called gross performance analysis. However, for a more detailed analysis it is necessary to determine the relationship between costs and volume of output. To do this, the concept of average costs is introduced.

Average costs and their dynamics

Average costs are the costs of producing and selling a unit of product.

Average total costs (average gross costs, sometimes called simply average costs) are determined by dividing total costs by the number of products produced. They are designated ATS or simply AC.

Average variable costs are determined by dividing variable costs by the quantity produced.

They are designated AVC.

Average fixed costs are determined by dividing fixed costs by the number of products produced.

They are designated AFC.

It is quite natural that average total costs are the sum of average variable and average fixed costs.

Initially, average costs are high because starting a new production requires certain fixed costs, which are high per unit of output at the initial stage.

Gradually average costs decrease. This happens due to the increase in production output. Accordingly, as production volume increases, there are fewer and fewer fixed costs per unit of output. In addition, the growth in production allows us to purchase necessary materials and instruments in large quantities, and this, as we know, is much cheaper.

However, after some time, variable costs begin to increase. This is due to the diminishing marginal productivity of factors of production. An increase in variable costs causes the beginning of an increase in average costs.

However, minimum average costs do not mean maximum profits. At the same time, analysis of the dynamics of average costs is of fundamental importance. It allows:

Determine the production volume corresponding to the minimum cost per unit of production;

Compare the cost per unit of output with the price per unit of output on the consumer market.

In Fig. Figure 2 shows a version of the so-called marginal firm: the price line touches the average cost curve at point B.

Rice. 2. Zero profit point (B).

The point where the price line touches the average cost curve is usually called the zero profit point. The company is able to cover the minimum costs per unit of production, but the opportunities for development of the enterprise are extremely limited. From the point of view of economic theory, a firm does not care whether it stays in a given industry or leaves it. This is due to the fact that at this point the owner of the enterprise receives normal compensation for the use of his own resources. From the point of view of economic theory, normal profit, considered as the return on capital at the best alternative its use is part of the cost. Therefore, the average cost curve also includes opportunity costs (it is not difficult to guess that in conditions of pure competition in the long term, entrepreneurs receive only the so-called normal profit, and there is no economic profit). The analysis of average costs must be complemented by the study of marginal costs.

Concept of marginal cost and marginal revenue

Average costs characterize the costs per unit of production, gross costs characterize costs as a whole, and marginal costs make it possible to study the dynamics of gross costs, try to anticipate negative trends in the future and ultimately draw a conclusion about the most optimal version of the production program.

Marginal cost is the additional cost incurred by producing an additional unit of output. In other words, marginal cost represents the increase in total cost for each unit increase in production. Mathematically, we can define marginal cost as follows:

MC = ΔTC/ΔQ.

Marginal cost shows whether producing an additional unit of output makes a profit or not. Let's consider the dynamics of marginal costs.

Initially, marginal costs decrease while remaining below average costs. This is due to lower unit costs due to positive economies of scale. Then, like average costs, marginal costs begin to rise.

Obviously, the production of an additional unit of output also increases total income. To determine the increase in income due to an increase in production, the concept of marginal income or marginal revenue is used.

Marginal revenue (MR) is the additional income obtained by increasing production by one unit:

MR = ΔR / ΔQ,

where ΔR is the change in enterprise income.

By subtracting marginal costs from marginal revenue, we get marginal profit (it can also be negative). Obviously, the entrepreneur will increase the volume of production as long as he remains able to receive marginal profits, despite its decline due to the law of diminishing returns.

Source - Golikov M.N. Microeconomics: teaching aid for universities. – Pskov: Publishing house PGPU, 2005, 104 p.

Production costs are expenses associated with the creation of products. In fact, it is payment for various production factors. Costs directly affect both the cost and the cost of production.

Classification

Costs can be private or public. They will be private if this indicator relates to a specific company. Social costs are an indicator that applies to the entire society. The following basic forms of enterprise costs are also distinguished:

Permanent. Expenses within one production cycle. They can be calculated for each of the production cycles, the length of which is determined by the enterprise independently.
Variables. Full costs transferred to the finished product.
Are common. Costs within one production stage.

In order to find out the overall indicator, you need to add up the constant and variable indicators.

Opportunity Cost

This group combines a number of indicators.

Accounting and economic costs

Accounting costs (BI)– costs of resources used by the enterprise. The calculations include the actual prices at which the resources were purchased. BI are equal to explicit costs.
Economic costs (EC) is the cost of products and services formed with the most optimal alternative use of resources. EI is equal to the sum of explicit and implicit costs. BI and EI can be either equal or different.

Explicit and implicit costs

Explicit costs (EC) are calculated based on the amount of company spending on external resources. External resources refer to reserves that do not belong to the enterprise. For example, a company has to purchase raw materials from a third-party supplier. The list of nuclear weapons includes:

Salary to employees.
Purchase or rental of equipment and premises.
Transport expenses.
Communal payments.
Acquisition of resources.
Depositing funds into banking institutions and insurance companies.

Implicit costs (NI) are costs that take into account the cost internal resources. Essentially, this is alternative spending. These may include:

The profit that the company would receive if it were more effective use internal resources.
The profit that would appear when investing capital in another area.

The NI factor is no less important than the NI factor.

Returnable and sunk costs

There are two definitions of sunk costs: broad and narrow. In the first meaning, these are expenses that the company cannot recover upon completion of its activities. For example, the company invested in registration and printing of advertising leaflets. All these costs cannot be returned, because the manager will not collect and sell leaflets to receive funds back. This indicator can be considered the enterprise’s payment for entering the market. It is impossible to avoid them. In a narrow sense sunk costs is a waste of resources that have no alternative use.

Return costs– these are expenses that can be returned partially or completely. For example, at the beginning of its work, the company purchased office space and office equipment. When the company ends its existence, all these objects can be sold. You can even get some benefit from selling the premises.

Fixed and variable costs

Over the short term, one part of the resources will remain unchanged, while the other will be adjusted in order to reduce or increase total output. Short-term expenses can be constant or variable. Fixed costs– these are expenses that are not affected by the volume of goods produced by the enterprise. These are the costs of fixed production factors. They include the following costs:

Payment of interest accrued as part of lending at a banking institution.
Depreciation charges.
Interest payment on bonds.
Salary of the head of the enterprise.
Payment for rent of premises and equipment.
Insurance charges.

Variable costs- These are expenses that depend on the volume of goods produced. They are considered the costs of variable factors. Includes the following costs:

Salary to employees.
Transportation costs.
Expenses on electricity necessary to ensure the functioning of the enterprise.
Costs of raw materials and materials.

It is recommended to monitor the dynamics of variable costs, as they reflect the efficiency of the enterprise. For example, as the optimal scale of a company’s operations increases, transportation costs increase. More carriers need to be hired for the increased volume of products. Raw materials must be promptly transported to headquarters. All this increases transport costs, which immediately affects variable costs.

General costs

General (aka gross) costs (OC)- these are expenses for the current period that are needed to produce the main product of the enterprise. They include the costs of all production factors. The size of the ROI will depend on the following factors:

Quantities of products produced.
Market value of the resources used.

At the very beginning of the enterprise (at the time of its launch), the total costs are zero.

Cost planning

Analysis and planning of expected expenses is mandatory for every enterprise. Determining the amount of costs allows you to find ways to reduce costs, which is important for reducing, as well as the cost at which it is offered to customers. Cost reduction is necessary to achieve goals such as:

Increasing the attractiveness of the company's products.
Increasing the competitiveness of the company.
Rational use of available resources.
Increased profit growth.
Optimization production processes.
Increasing the profitability of the company.

You can reduce enterprise costs in the following ways:

Staff reduction.
Optimization of work processes.
Purchasing new equipment that will make production less expensive.
Purchasing raw materials at a lower cost, searching advantageous offers suppliers.
Transferring a number of employees to freelance work.
By moving the enterprise to a relatively small building with a lower rental cost.

The goal of cost reduction is to reduce the cost of production without compromising its quality. This rule is extremely important, since it is almost always possible to reduce costs by reducing the quality of the product, but this will not benefit the company.

IMPORTANT! Costs need to be planned taking into account the results of previous calculations. The planned cost level must be realistic. Setting minimum values that cannot be met is pointless. As an example, you need to take the approximate indicator of past periods.

Displaying costs in accounting documents

Information about expenses is recorded in the “Losses” report. It is compiled according to Form No. 2. During the period of preparing indicators for their recording in the balance sheet, preliminary calculations can be divided into two categories: direct and indirect. Information should be entered into documents on a regular basis to analyze the activities of a large enterprise and track efficiency.

It is impossible for companies to carry out any activity without investing costs in the process of making a profit.

However, there are different types of expenses. Some operations during the operation of the enterprise require constant investments.

But there are also costs that are not fixed costs, i.e. refer to variables. How do they affect the production and sale of finished products?

The concept of fixed and variable costs and their differences

The main goal of the enterprise is the manufacture and sale of manufactured products to make a profit.

To produce products or provide services, you must first purchase materials, tools, machines, hire people, etc. This requires an investment of various amounts. Money, which are called “costs” in economics.

Since monetary investments in production processes come in many different types, they are classified depending on the purpose of using the expenses.

In economics costs are shared according to the following properties:

Explicit is a type of direct cash costs for making payments, commission payments to trading companies, payment banking services, transportation costs, etc.;
Implicit, which includes the cost of using the resources of the organization's owners, not provided for by contractual obligations for explicit payment.
Fixed investments are investments to ensure stable costs during the production process.
Variables are special costs that can be easily adjusted without affecting operations depending on changes in production volumes.
Irreversible - a special option for spending movable assets invested in production without return. These types of expenses occur at the beginning of the release of new products or reorientation of the enterprise. Once spent, funds can no longer be used to invest in other business processes.
Average is the estimated cost that determines the amount of capital investment per unit of output. Based on this value, the unit price of the product is formed.
Marginal is the maximum amount of costs that cannot be increased due to the ineffectiveness of further investments in production.
Returns are the costs of delivering products to the buyer.

Of this list of costs, the most important are their fixed and variable types. Let's take a closer look at what they consist of.

Kinds

What should be classified as fixed and variable costs? There are some principles by which they differ from each other.

In economics characterize them as follows:

Fixed costs include the costs that need to be invested in the manufacture of products within one production cycle. For each enterprise they are individual, therefore they are taken into account by the organization independently based on an analysis of production processes. It should be noted that these costs will be characteristic and the same in each of the cycles during the manufacture of goods from the beginning to the sale of products.
variable costs that can change in each production cycle and are almost never repeated.

Fixed and variable costs make up the total costs, summed up after the end of one production cycle.

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What applies to them

The main characteristic of fixed costs is that they do not actually change over a period of time.

In this case, for an enterprise that decides to increase or decrease its output, such costs will remain unchanged.

Among them can be attributed the following cash costs:

communal payments;
building maintenance costs;
rent;
employee earnings, etc.

In this situation, you always need to understand that the constant amount of total costs invested in a certain period of time to produce products in one cycle will only be for the entire number of products produced. When calculating such costs individually, their value will decrease in direct proportion to the increase in production volumes. For all types of production this pattern is an established fact.

Variable costs depend on changes in the quantity or volume of products produced.

To them include the following expenses:

energy costs;
raw materials;
piecework wages.

These monetary investments are directly related to production volumes, and therefore change depending on the planned parameters of production.

Examples

In each production cycle there are cost amounts that do not change under any circumstances. But there are also costs that depend on production factors. Depending on such characteristics, economic costs for a certain, short period of time are called constant or variable.

For long-term planning, such characteristics are not relevant, because sooner or later all costs tend to change.

Fixed costs are costs that do not depend in the short term on how much the company produces. It is worth noting that they represent the costs of its constant factors of production, independent of the number of goods produced.

Depending on the type of production into fixed costs consumables include:

Any costs that are not related to production and are the same in the short term of the production cycle can be included in fixed costs. According to this definition, it can be stated that variable costs are those expenses invested directly in product output. Their value always depends on the volume of products or services produced.

Direct investment of assets depends on the planned quantity of production.

Based on this characteristic, to variable costs The following costs include:

raw materials reserves;
payment of remuneration for the labor of workers involved in the manufacture of products;
delivery of raw materials and products;
energy resources;
tools and materials;
other direct costs of producing products or providing services.

The graphical representation of variable costs displays a wavy line that smoothly rises upward. Moreover, with an increase in production volumes, it initially rises in proportion to the increase in the number of products produced, until it reaches point “A”.

Then cost savings occur during mass production, and therefore the line rushes upward at no less speed (section “A-B”). After the violation of the optimal expenditure of funds in variable costs after point “B”, the line again takes a more vertical position.
The growth of variable costs can be influenced by the irrational use of funds for transport needs or excessive accumulation of raw materials and volumes of finished products during a decrease in consumer demand.

Calculation procedure

Let's give an example of calculating fixed and variable costs. The production is engaged in the manufacture of shoes. The annual production volume is 2000 pairs of boots.

The enterprise has the following types expenses per calendar year:

Payment for renting the premises in the amount of 25,000 rubles.
Interest payment 11,000 rubles. for a loan.

Production costs goods:

for labor costs for the production of 1 pair 20 rubles.
for raw materials and materials 12 rubles.

It is necessary to determine the size of total, fixed and variable costs, as well as how much money is spent on making 1 pair of shoes.

As we can see from the example, only rent and interest on the loan can be considered fixed or constant costs.

Due to fixed costs do not change their value when production volumes change, then they will amount to the following amount:

25000+11000=36000 rubles.

The cost of making 1 pair of shoes is considered a variable cost. For 1 pair of shoes total costs amount to the following:

20+12= 32 rubles.

Per year with the release of 2000 pairs variable costs in total are:

32x2000=64000 rubles.

Total costs are calculated as the sum of fixed and variable costs:

36000+64000=100000 rubles.

Let's define average of total costs, which the company spends on sewing one pair of boots:

100000/2000=50 rubles.

Cost analysis and planning

Each enterprise must calculate, analyze and plan costs for production activities.

Analyzing the amount of expenses, options for saving funds invested in production are considered in order to rational use. This allows the company to reduce production and, accordingly, install more cheap price for finished products. Such actions, in turn, allow the company to successfully compete in the market and ensure constant growth.

Any enterprise should strive to save production costs and optimize all processes. The success of the development of the enterprise depends on this. Thanks to the reduction in costs, the company's income increases significantly, which makes it possible to successfully invest money in the development of production.

Costs are planned taking into account calculations of previous periods. Depending on the volume of products produced, an increase or decrease in variable costs for the manufacture of products is planned.

Display in the balance sheet

In the financial statements, all information about the costs of the enterprise is entered into (Form No. 2).

Preliminary calculations during the preparation of indicators for entry can be divided into direct and indirect costs. If these values are shown separately, then we can assume that indirect costs will be indicators of fixed costs, and direct costs will be variable, respectively.

It is worth considering that the balance sheet does not contain data on costs, since it reflects only assets and liabilities, and not expenses and income.

To learn what fixed and variable costs are and what applies to them, see the following video: