Any production activity requires financial costs for material and labor resources. The ratio of expenses for ensuring economic activity with the profit received determines the profitability of a business entity. In the economics of the enterprise, these factors occupy a central position, since they determine the level of competitiveness of the company in the market of similar activities that have a direct impact on the success of the implementation of an entrepreneurial idea.
The costs of the enterprise help to assess its level of profitability
What are costs
Economic activity carried out in any area is always accompanied by certain monetary expenditures for the purchase and use of resources.
These costs in terms of value are called enterprise costs. They not only influence the formation of the balance of income and expenses, but also determine the need to purchase additional production factors, as well as the possibility of investing in this direction. The parameter allows you to determine the efficiency of production activities, as well as the degree of rationality of its organization.
Competence in the economic sphere, concerning the division of costs, allows the head of a business entity to determine in a timely manner the need to apply production methods that reduce costs and increase the return on investment in resources for the purchase of raw materials, materials, equipment and hired labor. Such achievements allow us to improve profitability indicators at the end of the reporting period.
Application of the concept in economic theory
What are production costs
The profit received as a result of economic activity is an important factor value relationships in market economy. It is the main element of the management mechanism of a business entity. It is used to analyze the profitability of a business. Variable and fixed costs, examples of which are discussed below, determine the costs of the enterprise, depending on the value form of the income received. They serve as benchmarks for performance evaluation against which comparative analysis can be carried out.
Representatives of the state apparatus are interested in reducing costs, since this contributes to the growth of income received, which is the main source of replenishment of the budget. Therefore, when planning it, the statistical parameters of business entities in this area are taken into account, which make it possible to determine the potential amount of mandatory deductions.
What determines the value of the parameter
The value of production costs is directly proportional to the cost of acquired factors of resource value. The natural desire of the head of a business entity is to obtain maximum profit at minimum cost. A well-organized business process allows you to maintain the volume of production activities while minimizing costs, provided by reducing the resources put into circulation.
A business entity, carrying out activities, in the process of implementing its results, incurs additional costs associated with promotion on the market and sales. This article of commercial expenses, called implementation costs, includes financial expenses for the provision of activities. Variable costs also include marketing research, advertising, as well as transportation of products to its consumers.
What is the total cost
Certain items of expenditure include mandatory payments to settlement accounts government agencies such as taxes, fees and contributions to trust funds. These types of cash expenditures are also components of entrepreneurial costs.
Read also: What is revenue: calculation formula, difference from income and profit
Constituent Elements of a Parameter
The value of production costs is formed from three elements:
- cost price;
- price;
- price.
The cost price is called the initial costs of a business entity for the manufacture of a unit of output. The cost parameter includes all applicable types of costs that affect the amount of profit. The implementation of the result of labor is carried out at market value, taking into account the allowances that form the profit item.
Types of costs
Enterprise cost classification
There are several types of costs that are easier to understand if you imagine the structure of the enterprise. The result of any production is a transaction that determines the sale of the results of labor. The main position of the seller is to cover the costs spent on production activities. Therefore, the cost parameter is primarily laid down in the price. They may be of an economic, accounting or alternative nature.
economic costs
What is economic cost
Economic costs refer to the economic costs of providing a product or service. The constituent elements of the parameter are:
- material and labor resources acquired for the possibility of implementing production activities;
- previously purchased internal resources that are not included in the market turnover, without which the operation of the company is impossible;
- part of the profit, considered as compensation for the risk of possible losses or shortfall in income.
The entrepreneur seeks to compensate for the economic criteria of the parameter in terms of the cost of labor results. If he fails to do this, then the meaning of the functioning of the business is lost, and the head of the business entity should look for himself in other areas of activity.
Accounting
What are accounting costs
Accounting costs include items of expenditure, which include funds intended for the acquisition of economic resources. These include expenses that are not used to implement the production cycle, but without which its functioning is impossible:
- payment for mental or physical labor of employees;
- acquisition or lease of land or water resources;
- investment in capital goods, which may be of a physical or financial nature.
Accounting costs include only real and legally documented costs for the purchase of resources. The parameter takes into account the acquisition of equipment, tools, as well as movable and real estate. This category can also include the issue of securities or shares used in the production process.
Accounting costs are always less than economic costs, because Accounting does not allow abstraction.
The parameter can be direct or indirect. Direct costs take into account the money spent on production. Indirect costs imply cash costs that ensure the normal functioning of production. These include deductions for depreciation of equipment, payment of interest to banking institutions for the use of in cash as well as overhead costs.
Alternative
opportunity cost
Opportunity costs determine the costs of producing the product that the subject entrepreneurial activity probably will not produce due to the use of only individual elements of the process to ensure the functioning of the enterprise. They can be categorized as lost profit opportunities. The value of the parameter corresponds to the difference between economic and accounting costs. It is determined independently by each head of a business entity, depending on his personal idea of the desired profitability of the business.
Classification of the parameter to determine the rational functioning of the enterprise
The growth of production volumes causes an increase in the costs of ensuring the normal functioning of a business entity.
No enterprise can develop and expand indefinitely, since each business entity has individual restrictions regarding the optimal size of the enterprise. To determine the limits of this boundary, apply variable and fixed costs.Such a division is acceptable for short time periods determined by production cycles, during which the factors are practically unchanged. For long-term periods, all parameters are categorized as variables.
In the center of the classification of costs is the relationship between the volume of production and costs, the price of a given type of goods. Costs are divided into independent and dependent on the volume of production.
fixed costs do not depend on the value of production, exist at zero volume of production. These are the previous obligations of the enterprise (interest on loans, etc.), taxes, depreciation, security payments, rent, equipment maintenance costs at zero production volume, salary management personnel etc. The concept of fixed costs can be illustrated in Fig. one.
Rice. one. Fixed costs Chuev I.N., Chechevitsyna L.N. Enterprise economy. - M.: ITK Dashkov i K - 2006. - 225p.
Let's plot the quantity of output (Q) on the abscissa axis, and the costs (C) on the ordinate axis. Then the line of fixed costs will be a constant parallel to the x-axis. It is designated FC. Since with an increase in the volume of production, fixed costs per unit of production decrease, the curve of average fixed costs (AFC) has a negative slope (Fig. 2). Average fixed costs are calculated by the formula: AFC = FС/Q.
They depend on the quantity of products produced, they consist of the costs of raw materials, materials, wages for workers, etc.
As the optimal output volumes are reached (at point Q1), the growth rate of variable costs decreases. However, further expansion of production leads to an acceleration in the growth of variable costs (Fig. 3).
Rice. 3.
The sum of fixed and variable costs forms gross costs- amount cash expenses for the production of certain products.
The distinction between fixed and variable costs is essential for every businessman. Variable costs are costs that an entrepreneur can control, the amount of which can change over time. short term time by changing the volume of production. On the other hand, fixed costs are obviously under the control of the firm's management. Such costs are mandatory and must be paid regardless of the volume of production 11 See: McConnell K.R. . 11th ed. - T. 2. - M.: Respublika, - 1992, p. 51..
To measure the cost of producing a unit of output, the categories of average, average fixed and average variable costs are used. Average cost equal to the quotient of dividing the gross cost by the amount of output. determined by dividing fixed costs by the quantity of goods produced.
Rice. 2.
Determined by dividing the variable costs by the volume of production:
AVC = VC/Q
When the optimal size of production is reached, the average variable costs become minimal (Fig. 4).
Rice. four.
Average variable costs play an important role in the analysis of the economic state of the company: its equilibrium position and development prospects - expansion, reduction in production or exit from the industry.
General costs - the total of fixed and variable costs of a firm TC = FC + VC).
Graphically, the total costs are depicted as a result of the summation of the curves of fixed and variable costs (Fig. 5).
Average total cost is the quotient of total cost (TC) divided by output (Q). (Sometimes the average total cost of ATS in the economic literature is referred to as AC):
AC (ATC) = TC/Q.
Average total cost can also be obtained by adding average fixed and average variable costs:
Rice. 5.
Graphically, average costs are depicted by summing the curves of average fixed and average variable costs and have a Y-shape (Fig. 6).
Rice. 6.
The role of average costs in the activities of the company is determined by the fact that their comparison with the price allows you to determine the amount of profit, which is calculated as the difference between total revenue and total costs. This difference serves as a criterion for choosing the right strategy and tactics for the firm.
The concepts of total and average costs are not enough to analyze the behavior of the firm. Therefore, economists use another type of cost - marginal.
marginal cost - is the increase in the total cost of producing an additional unit of output.
The category of marginal cost is of strategic importance, since it allows you to show the costs that a firm will have to incur if it produces one more unit of output or save if it reduces production by this unit. In other words, marginal cost is the amount that the firm can directly control.
Marginal cost is obtained as the difference between the production costs n+ 1 units and production costs P product units.
Since when the volume of output changes, the fixed costs FV do not change, the change in marginal cost is determined only by the change in variable costs as a result of the production of an additional unit of output.
Graphically, marginal costs are depicted as follows (Fig. 7).
Rice. 7. Marginal and average costs Chuev I.N., Chechevitsyna L.N. Enterprise economy. - M.: ITK Dashkov i K - 2006. - 228s.
Let us comment on the main relations between the mean and marginal cost.
The size of marginal and average costs are extremely important, since they primarily determine the choice of the volume of production by the firm.
MS do not depend on FС , because fc do not depend on the volume of production, and MC are incremental costs.
As long as MC is less than AC, the average cost curve has a negative slope. This means that the production of an additional unit of output reduces the average cost.
When MC equals AC, this means that average costs have stopped decreasing, but have not yet begun to increase. This is the point of minimum average cost (AC = min).
5. When MC becomes larger than AC, the average cost curve goes up, indicating an increase in average cost as a result of the production of an additional unit of output.
6. The MC curve intersects the AVC curve and the AC curve at the points of their minimum values (Fig. 7).
Under average refers to the costs of the plant for the production and sale of a unit of goods. Allocate:
* average fixed costs A.F.C., which are calculated by dividing the firm's fixed costs by the volume of production;
* average variable costs AVC, calculated by dividing the variable costs by the volume of production;
* average gross costs or the total cost of a unit of ATC product, which are defined as the sum of average variable and average fixed costs or as a quotient of dividing gross costs by output volume (their graphical expression in Appendix 3).
* according to the methods of accounting and grouping costs, they are divided into simple(raw materials, materials, wages, depreciation, energy, etc.) and complex, those. collected in groups either by functional role in the production process or by the place of costs (shop expenses, general factory expenses, etc.);
* according to the terms of use in production, everyday, or current, costs and lump sum, one-time costs incurred less than once a month and for economic analysis costs, marginal cost is used.
Average total cost (ATC) is total costs per unit of output, which are usually used to compare with price. They are defined as the quotient of total costs divided by the number of units of output produced:
TC = ATC / Q (2)
(AVC) is an indicator of the cost of a variable factor per unit of output. They are defined as the quotient of gross variable costs divided by the number of units of production and are calculated using the formula:
AVC = VC / Q. (3)
Average fixed costs (AFC) - an indicator of fixed costs per unit of output. They are calculated according to the formula:
AFC=FC/Q. (four)
Graphic dependencies of quantities various kinds average costs from output volume are presented on fig. 2.
Rice. 2
From the data analysis in fig. 2 can be concluded:
1) the value of AFC, which is the ratio of the constant FC to the variable Q (4), is a hyperbola on the graph, i.e. with an increase in production volume, the share of average fixed costs per unit of output decreases;
2) the value of AVC is the ratio of two variables: VC and Q (3). However variable costs(VC) are almost directly proportional to the output (because the more products are planned to be produced, the higher the costs will be). Therefore, the dependence of AVC on Q (volume of production) has the form of an almost straight line parallel to the x-axis;
3) ATC, which is the sum of AFC + AVC, on the graph has the form of a hyperbolic curve, located almost parallel to the AFC line. Thus, as in the case of AFC, the share of average total costs (ATC) per unit of output decreases with an increase in output.
Average total costs first fall and then start to rise. Moreover, the ATC and AVC curves are approaching. This is because average fixed costs in the short run decrease as output increases. Therefore, the difference in the height of the ATC and AVC curves at a given volume of production depends on the value of AFC.
In the specific practice of applying cost calculation to analyze the activities of enterprises in Russia and in Western countries, there are both similarities and differences. The category is widely used in Russia cost price, which is the total cost of production and sale of products. Theoretically, the cost price should include standard production costs, but in practice it includes excess consumption of raw materials, materials, etc. The cost price is determined on the basis of adding up economic elements (homogeneous in terms of economic purpose of costs) or by summing up costing items that characterize the direct directions of certain costs.
Both in the CIS and in Western countries, to calculate the cost, a classification of direct and indirect costs (expenses) is used. Direct costs are the costs directly associated with the creation of a unit of goods. Indirect costs are necessary for the general implementation of the production process of this type of product at the enterprise. The general approach does not exclude differences in the specific classification of some articles.
In connection with the volume of output, costs in the short run are divided into fixed and variable.
The constants do not depend on the volume of output (FC). These include: depreciation costs, wages employees (as opposed to workers), advertising, rent, electricity bills, etc.
The variables depend on the volume of output (VC). For example, the cost of materials, the wages of the main production workers and others.
Fixed costs (costs) are also present at zero output (therefore, they are never equal to zero). For example, regardless of whether the product is produced or not. You still need to pay rent for the space. On the graph of the dependence of the value of costs (C) on the volume of production (Q) fixed costs(FC) look like a horizontal straight line, since they are not related to the released products (Fig. 1).
Since variable costs (VC) depend on output, the more products are planned to be produced, the more costs need to be incurred for this. If nothing is produced, then there are no costs. Thus, the value of variable costs is in direct positive dependence on the volume of output and on the graph (see Fig. 1) is a curve emerging from the origin.
The sum of fixed and variable costs is equal to the total (gross) costs:
TC=FC+VC.(1)
Based on the above formula, on the graph the curve of total costs (TC) is built parallel to the curve of variable costs, however, it does not start from zero, but from a point on the y-axis. corresponding to the fixed costs. It can also be concluded that with an increase in the volume of production, the total costs grow proportionally (Fig. 1).
All considered types of costs (FC, VC and TC) refer to the entire output.
Rice. one Dependence of total costs (TC) on variables (VC) and constants (FC).
short term - this is the period of time during which some factors of production are constant, while others are variable.
Fixed factors include fixed assets, the number of firms operating in the industry. In this period, the company has the opportunity to vary only the degree of utilization of production capacities.
Long term is the length of time during which all factors are variable. In the long run, the firm has the ability to change the overall dimensions of buildings, structures, the amount of equipment, and the industry - the number of firms operating in it.
fixed costs ( FC ) - these are costs, the value of which in the short run does not change with an increase or decrease in the volume of production.
Fixed costs include costs associated with the use of buildings and structures, machinery and production equipment, rent, overhaul as well as administrative costs.
Because As production increases, total revenue increases, then average fixed costs (AFC) are a decreasing value.
variable costs ( VC ) - These are costs, the value of which varies depending on the increase or decrease in the volume of production.
Variable costs include the cost of raw materials, electricity, auxiliary materials, labor costs.
Average Variable Costs (AVC) are:
Total costs ( TC ) - a set of fixed and variable costs of the company.
Total costs are a function of the output produced:
TC = f(Q), TC = FC + VC.
Graphically, the total costs are obtained by summing the curves of fixed and variable costs (Figure 6.1).
The average total cost is: ATC = TC/Q or AFC +AVC = (FC + VC)/Q.
Graphically, ATC can be obtained by summing the AFC and AVC curves.
marginal cost ( MC ) is the increase in total cost due to an infinitesimal increase in production. Marginal cost is usually understood as the cost associated with the production of an additional unit of output.
The costs of the enterprise can be considered in the analysis from different points of view. Their classification is based on various features. From the standpoint of the impact of product turnover on costs, they can be dependent or independent of the increase in sales. Variable costs, an example of the definition of which requires careful consideration, allow the head of the company to manage them by increasing or decreasing sales. finished products. That is why they are so important to understand. proper organization activities of any enterprise.
general characteristics
Variables (Variable Cost, VC) are those costs of the organization that change with an increase or decrease in the growth of sales of manufactured products.
For example, when a company goes out of business, variable costs should be zero. To operate effectively, a business will need to evaluate its cost performance on a regular basis. After all, they affect the size of the cost of finished products and turnover.
Such items.
- The book value of raw materials, energy resources, materials that are directly involved in the production of finished products.
- The cost of manufactured products.
- The salary of employees, depending on the implementation of the plan.
- Percentage of the activities of sales managers.
- Taxes: VAT, STS, UST.
Understanding Variable Costs
In order to correctly understand such a concept as variable costs, an example of their definition should be considered in more detail. Thus, production in the process of fulfilling its production programs spends a certain amount of materials from which the final product will be made.
These costs can be classified as variable direct costs. But some of them should be shared. A factor such as electricity can also be attributed to fixed costs. If the cost of lighting the territory is taken into account, then they should be attributed to this category. Electricity, directly involved in the manufacturing process of products, refers to variable costs in the short term.
There are also costs that depend on turnover, but are not directly proportional production process. Such a trend may be caused by insufficient workload (or excess) of production, a discrepancy between its design capacity.
Therefore, in order to measure the effectiveness of an enterprise in managing its costs, one should consider variable costs as obeying a linear schedule over a segment of normal production capacity.
Classification
There are several types of variable cost classifications. With a change in costs from implementation, a distinction is made between:
- proportional costs, which increase in exactly the same way as the volume of production;
- progressive costs that increase at a faster rate than implementation;
- degressive costs, which increase at a slower rate as the rate of production increases.
According to statistics, the company's variable costs can be:
- general (Total Variable Cost, TVC), which are calculated for the entire product range;
- averages (AVC, Average Variable Cost), calculated per unit of goods.
According to the method of accounting in the cost of finished products, variables are distinguished (they are simply attributed to the cost) and indirect (it is difficult to measure their contribution to the cost).
With regard to the technological output of products, they can be industrial (fuel, raw materials, energy, etc.) and non-productive (transportation, interest to an intermediary, etc.).
General variable costs
The output function is similar to variable costs. She is continuous. When all costs are brought together for analysis, the total variable costs for all products of one enterprise are obtained.
When common variables are combined and their total sum in the enterprise is obtained. This calculation is carried out in order to reveal the dependence of variable costs on the volume of production. Further, the formula is used to find variable marginal costs:
MS = ∆VC/∆Q where:
- MC - marginal variable costs;
- ΔVC - increase in variable costs;
- ΔQ - increase in output.
Average cost calculation
Average variable cost (AVC) is the amount of resources a company spends per unit of output. Within a certain range, production growth has no effect on them. But when the design capacity is reached, they begin to increase. This behavior of the factor is explained by the heterogeneity of costs and their increase with large scale production.
The presented indicator is calculated as follows:
AVC=VC/Q where:
- VC - the number of variable costs;
- Q - the number of products released.
In terms of measurement parameters, average variable costs in the short run are similar to changes in average total costs. The greater the output of finished products, the more total costs begin to match the growth of variable costs.
Variable cost calculation
Based on the above, the variable cost (VC) formula can be defined as:
- VC = Cost of materials + Raw materials + Fuel + Electricity + Bonus salary + Percentage of sales to agents.
- VC = Gross Profit - Fixed Costs.
The sum of variable and fixed costs is equal to the total cost of the organization.
The calculation of which was presented above, participate in the formation of their general indicator:
Total Costs = Variable Costs + Fixed Costs.
Definition example
To better understand the principle of calculating variable costs, consider an example from the calculations. For example, a company characterizes its output as follows:
- The cost of materials and raw materials.
- Energy costs for production.
- Wages of workers producing products.
It is argued that variable costs grow in direct proportion with the increase in sales of finished products. This fact is taken into account to determine the break-even point.
For example, it was calculated that it amounted to 30 thousand units of production. If you build a graph, then the level of break-even production will be equal to zero. If the volume is reduced, the company's activities will move into the plane of unprofitability. And similarly, with an increase in production volumes, the organization will be able to receive a positive net profit result.
How to reduce variable costs
The strategy of using the "scale effect", which manifests itself with an increase in production volumes, can increase the efficiency of the enterprise.
The reasons for its appearance are the following.
- Using the achievements of science and technology, conducting research, which increases the manufacturability of production.
- Reducing the cost of salaries of managers.
- Narrow specialization of production, which allows you to perform each stage production tasks more qualitatively. This reduces the marriage rate.
- Implementation of technologically similar production lines, which will provide additional capacity utilization.
At the same time, variable costs are observed below sales growth. This will increase the efficiency of the company.
Having become acquainted with such a concept as variable costs, an example of the calculation of which was given in this article, financial analysts and managers can develop a number of ways to reduce overall production costs and reduce product costs. This will make it possible to effectively manage the pace of turnover of the company's products.
Lecture:
Fixed and variable costs
The success of entrepreneurial activity (business) is determined by the amount of profit, the calculation of which is made according to the formula: revenue - costs = profit .
What expenses should the manufacturer incur in order to create a product or service? It:
- expenses for raw materials and supplies;
- expenses for utilities, transport and other services;
- payment of taxes, insurance premiums, interest on a loan;
- payment of salaries to employees;
- depreciation deductions.
Costs are otherwise known as production costs. They are fixed and variable. The fixed and variable costs of the firm for the production and sale of a unit of goods constitute its cost price which is expressed in monetary terms.
fixed costs- these are costs that do not depend on the volume of output, that is, costs that the manufacturer is forced to make even if his income does not amount to a ruble.
These include:
- rent payments;
- taxes;
- interest on loans;
- insurance payments;
- utility bills;
- salaries of management personnel (administrators, salaries of managers, accountants, etc.);
- depreciation deductions (expenses for the replacement or repair of worn-out equipment).
variable costs These are costs, the value of which depends on the volume of products produced.
Among them:
- expenses for raw materials and supplies;
- fuel costs;
- payment for electricity;
- piecework wages for hired workers;
- transportation costs;
- shipping and packaging costs.
External and internal costs
Fixed and variable costs are reflected in the accounting report of the company and therefore are external. But when analyzing the profitability of the enterprise, the manufacturer also takes into account the internal or hidden costs associated with the actual resources used. For example, Andrei opened a store in his premises and works in it himself. He uses own premises and own labor, and the monthly income from the store is 20,000 rubles. Andrey can use the same resources in an alternative way. For example, renting a room for 10,000 rubles. per month and getting a job as a manager in a large company for a fee of 15,000 rubles. We see a difference in income of 5,000 rubles. This is the internal cost - the money that the manufacturer donates. An analysis of internal costs will help Andrey use his own resources more profitably.
Additional materials to the lesson :
Mind map in social studies No. 23
👩🏫 Greetings dear reader and thank you for your interest in my author's course! It will especially help out those who are preparing for the exam or the exam on their own. Well, if one of you is experiencing difficulties and wants to prepare for the exam with me, then sign up for online classes. I will teach you how to solve all CIM tasks and, of course, I will explain incomprehensible and complex theoretical issues. You can contact me 👉 or 👉
Only lovers will survive
Features of advertising aimed at children
retouching old photos in photoshop retouching old photos
What is an NPO: decoding, definition of goals, types of activities Does a non-profit organization have the right
Gleb Nikitin First Deputy