Fixed and variable expenses of the enterprise. Analysis of decisions made. Fixed production costs

They are divided into variables and constants. Their main difference is that some change with increasing production volume, while others do not. However, fixed and variable costs include costs related to production and sales. When production activities cease, part of the expenses disappears and becomes zero. Let's look at what variable costs include. An example of costs will also be given in the article.

Composition of expenses

Variable costs include:

1. Commercial expenses (percentages from sales to sales managers and other remunerations, as well as% paid to outsourcing companies).
2. Cost of goods produced.
3. Salary of working personnel (part of the salary, which depends on the standards met).
4. The cost of fuel, raw materials, materials, electricity and other resources involved in production activities.

Variable costs also include some taxes: VAT, excise taxes, deductions under the simplified tax system, unified tax on premiums.

Purpose of calculation

Behind each coefficient, indicator or concept it is necessary to see their economic meaning. If we talk about the goals of the enterprise, then, in general, there are two of them: reducing costs or increasing income. When these concepts are generalized, the profitability of the company arises. The higher this indicator is, the more stable it will be financial position firms, there will be more opportunities to attract additional borrowed funds and expand technical and production capacities. In this case, the enterprise can increase its own value on the market and increase its investment attractiveness. Division is used in management accounting. Company managers need to know what variable costs include. There is no line showing this group of expenses in the financial statements. Determining the amount of these costs in general structure allows you to analyze the company's activities. Management, knowing that variable costs include, by balancing expenses and income, has the opportunity to consider different management strategies for increasing the profitability of the company.

Production and sales volume

To better understand what variable costs include, you should consider their division depending on certain characteristics. Based on production and sales volumes, the following are distinguished:

How to reduce costs?

One of the options for reducing variable costs is the use of “economies of scale”. It appears with an increase in production volume and the transition from serial to mass production of products. The graph shows that as output increases, a certain point is reached. In it, the relationship between the amount of expenses and production volume becomes nonlinear. At the same time, the rate at which variable costs change is lower than the intensity of growth in output/sales of goods. The reasons for this effect include:

Static indicator

Based on this, expenses are divided into:

1. Are common.
2. Average.

Total variable costs include all costs related to a given category across the entire product range. Average costs include costs per unit. products or group of products.

Financial Accounting

When carrying out accounting, we distinguish:

Attitude to the process

According to this criterion, production and non-production types are distinguished. The first relate to the production process directly. Such variable costs include the cost of materials, raw materials, energy, fuel resources, wages to workers, and so on. Non-production costs not directly related to product output. These include, for example, transportation costs, agent commissions and other management and commercial costs.

Calculation

The formula looks like this:

- Variable expenses = Costs of raw materials + materials + fuel + electricity + bonuses to salary + % of sales.

- Variable costs= gross - fixed costs.

Break even

Let's consider the role of variable costs in its determination. The break-even point directly depends on these costs. When a company reaches a certain production volume, a moment of equilibrium occurs. At this point, the amount of losses and profits coincides. In this case, net income is equal to 0, and marginal income equals fixed costs. This point indicates the minimum critical production level at which the enterprise is considered profitable. The company's task is to create a safety zone and create a level of production and sales of products that would ensure the maximum distance from the break-even point. The farther the enterprise is from this point, the higher its financial stability, profitability, competitiveness. As variable costs increase, this point moves.

Important point

The model discussed above usually operates on linear relationships between production volume and profit/expenses. In practice, these dependencies are often nonlinear. This situation is due to the fact that the size of production is influenced by a number of factors. These include:

• Seasonality of demand.
• Technologies used.
• Activities of competitors.
• Taxes.
• Macroeconomic indicators.
• "Effect of scale".
• Subsidies and more.

To ensure the accuracy of the model, it must be applied in the short term to products with stable demand.

The organization produces finished products. In tax accounting policy, we need to establish a list of direct expenses. What wages should be included in direct expenses?

When creating a list of direct expenses for profit tax purposes, it is recommended to adhere to the list of expenses that form production cost finished products in accounting. It should be taken into account that the concepts of “direct costs” in accounting and “direct costs” in tax accounting are different.

Direct costs in accounting (a narrower concept) are costs that can be directly attributed to the production of a specific type of product. Costs that are included in the production cost of finished products by distribution (for example, shop costs) in accounting are called overhead costs. However, for income tax purposes these are direct expenses.

In tax accounting, direct expenses include those that are recognized in the income tax base in the reporting (tax) period in which finished products are sold. Essentially, direct costs are the production cost of a product.

In accounting, direct costs are accounted for in the debit of account 20: Debit 20 Credit 10, 70, 69. Analytical accounting in account 20 is organized for each type (by name, grade, article) of manufactured products. As a rule, the costs of raw materials, basic and auxiliary materials, basic and additional wages of production workers and social contributions for these wages can be directly attributed to a specific type of product.

The article “Basic wages of production workers” takes into account the basic wages of both production workers and engineering and technical workers directly related to the manufacture (production) of products.

The main wages production workers include: payment for operations and work according to piecework rates and rates, as well as time-based wages; additional payments for piece-rate and time-based bonus payment systems, regional coefficients, etc.; additional payments to the basic piece rates due to deviations from normal conditions production (inconsistencies of equipment, materials, tools and other deviations from technology).

The basic wages of production workers are directly included in the cost of the corresponding types of products (groups of homogeneous types of products).

That part of the basic wages of production workers, the direct attribution of which to the cost individual species production is difficult, it is recommended to include it on the basis of calculation (based on the volume of production, the list of jobs and service standards) of the estimated rate of these costs per unit of product (product, order, machine kit, etc.).

The actual wages of these workers are included in the cost of individual types of products, commodity output and work in progress in proportion to estimated rates. These rates should be reviewed periodically as production volumes, technology, tariff rates and so on.

The article “Additional wages of production workers” takes into account payments provided for by labor legislation or collective agreements for time not worked at production (non-appearance): payment for regular and additional vacations, compensation for unused vacation, payment for preferential hours for teenagers, payment for breaks in work for nursing mothers mothers, payment for time associated with the performance of state and public duties, payment of remuneration for length of service, etc.

The wages of general shop personnel (shop manager, repair crew, production premises cleaners, etc.) are debited to balance sheet account 25, which at the end of the month is distributed by type of product: Debit 20 Credit 25. Accordingly, for the purposes tax accounting it is also included in direct costs.

Salaries of management personnel are written off as a debit to balance sheet account 26. Depending on the provisions of the accounting accounting policy administrative expenses can be included in the production cost of finished products (Debit 20 Credit 26) or written off in full to the cost of sales of the reporting period (Debit 90.2 Credit 26).

In the first option, the salary of management personnel, from the point of view of tax accounting, relates to direct expenses, in the second option - to indirect expenses.

To determine the total costs of producing different volumes of output and the costs per unit of output, it is necessary to combine production data included in the law of diminishing returns with information on input prices. As already noted, over a short period of time, some resources associated with the technical equipment of the enterprise remain unchanged. The number of other resources may vary. It follows that in the short term different kinds costs can be classified as either fixed or variable.

Fixed costs. Fixed costs are those costs whose value does not change depending on changes in production volume. Fixed costs are associated with the very existence of a company's production equipment and must be paid even if the company does not produce anything. Fixed costs usually include payment of obligations on bond loans, bank loans, rental payments, enterprise security, payment utilities(telephone, lighting, sewerage), as well as time-based salaries for employees of the enterprise.

Variable costs. Variables are those costs whose value changes depending on changes in production volume. These include costs of raw materials, fuel, energy, transport services, most labor resources etc. The amount of variable costs varies depending on production volumes.

General costs is the sum of fixed and variable costs for each given volume of production.

We show total, fixed and variable costs on the graph (see Fig. 1).

At zero production volume total amount costs is equal to the sum of the firm's fixed costs. Then, with the production of each additional unit of output (from 1 to 10), the total cost changes by the same amount as the sum of the variable costs.

The sum of variable costs varies from the origin, and the sum of fixed costs is added each time to the vertical dimension of the sum of variable costs to obtain the total cost curve.

The distinction between fixed and variable costs is significant. Variable costs are costs that can be quickly controlled; their value can be changed over a short period of time by changing the volume of production. On the other side, fixed costs are obviously beyond the control of the company's management. Such costs are mandatory and must be paid regardless of production volumes.

Return to Product Costs

Variable and fixed costs are the two main types of costs. Each of them is determined depending on whether the resulting costs change in response to fluctuations in the selected cost type.

Variable costs are costs whose size varies in proportion to changes in the volume of production. Variable costs include: raw materials and supplies, wages of production workers, purchased products and semi-finished products, fuel and electricity for production needs, etc.

In addition to direct production costs, some types of indirect costs are considered variable, such as: costs of tools, auxiliary materials, etc. Per unit of production, variable costs remain constant, despite changes in production volume.

Example: With a production volume of 1000 rubles. with a cost per unit of production of 10 rubles, variable costs amounted to 300 rubles, that is, based on the cost of a unit of production they amounted to 6 rubles. (300 rub. / 100 pcs. = 3 rub.).

As a result of doubling production volume, variable costs increased to 600 rubles, but calculated on the cost of a unit of production they still amount to 6 rubles. (600 rub. / 200 pcs. = 3 rub.).

Fixed costs- costs, the value of which almost does not depend on changes in the volume of production. Fixed costs include: salaries of management personnel, communication services, depreciation of fixed assets, rental payments, etc. Per unit of production, fixed costs change in parallel with changes in production volume.

Example: With a production volume of 1000 rubles. with a cost per unit of production of 10 rubles, fixed costs amounted to 200 rubles, that is, based on the cost of a unit of production they amounted to 2 rubles. (200 rub. / 100 pcs. = 2 rub.).

As a result of doubling production volume, fixed costs remained at the same level, but based on the cost of a unit of production they now amount to 1 rub. (2000 rub. / 200 pcs. = 1 rub.).

At the same time, while remaining independent of changes in production volume, fixed costs can change under the influence of other (often external) factors, such as rising prices, etc.

However, such changes usually do not have a noticeable impact on the amount of general business expenses, therefore, when planning, accounting and control, general business expenses are taken as constant.

It should also be noted that some of the general expenses may still vary depending on the volume of production.

Thus, as a result of an increase in production volume, the salaries of managers may increase, their technical equipment(corporate communications, transport, etc.).

Firm costs
Enterprise costs
Production costs
Production costs
Production and distribution costs

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All topics:Microeconomics

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 economic theory opportunity cost or opportunity cost. 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 cost 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 assessing 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 the cost of payment technical staff, 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 the finished product during one turnover and is spent on the purchase of raw materials for each production cycle is called circulating capital. 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 is the ratio of the amount of annual depreciation charges to the cost of fixed assets, expressed as a percentage. The state establishes different depreciation rates for individual groups of 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 production volume. They are designated VC. Variable costs include the cost of raw materials and materials, piecework wages of 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 costs 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 special attention to 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 output.

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 a normal reward for the use of his own resources. From the point of view of economic theory, normal profit, considered as the return on capital at its best alternative 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 costs per unit of production, gross costs characterize costs in general, and marginal cost 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: educational and methodological manual for universities. – Pskov: Publishing house PGPU, 2005, 104 p.

All theoretical articles

CATBACK.RU 2010-2017

1. The concept of costs. There is no production without costs. Costs are the costs of purchasing factors of production.

Costs can be calculated in different ways, therefore in economic theory, starting with A. Smith and D. Ricardo, there are dozens of different cost analysis systems. By the middle of the twentieth century. have developed general principles classifications: 1) according to the cost estimation method and 2) in relation to the amount of production (Fig. 18.1).

Rice. 18.1.Classification of production costs

2. Economic, accounting, opportunity costs. If you look at purchase and sale from the position of the seller, then in order to receive income from the transaction, it is first necessary to recoup the costs incurred for the production of the goods.

Economic (opportunity) costs- these are business costs incurred, in the opinion of the entrepreneur, by him in the production process. They include:

1) resources acquired by the company;

2) internal resources of the company that are not included in market turnover;

3) normal profit, considered by the entrepreneur as compensation for risk in business.

It is the economic costs that the entrepreneur is obligated to compensate primarily through price, and if he fails to do this, he is forced to leave the market for another field of activity.

Accounting costs– cash expenses, payments made by a company in order to acquire the necessary factors of production on the side. Accounting costs are always less than economic ones, since they take into account only the real costs of purchasing resources from external suppliers, legally formalized, existing in an explicit form, which is the basis for accounting.

Accounting costs include direct and indirect costs. The former consist of costs directly for production, and the latter include costs without which the company cannot operate normally: overhead costs, depreciation charges, interest payments to banks, etc.

The difference between economic and accounting costs is opportunity cost.

Opportunity Cost- these are the costs of producing products that the company will not produce, since it uses resources in the production of this product. Essentially, the opportunity cost is this is the opportunity cost. Their value is determined by each entrepreneur independently, based on his personal ideas about the desired profitability of the business.

3. Fixed, variable, total (gross) costs. An increase in a firm's production volume usually entails an increase in costs. But since no production can develop indefinitely, costs are therefore a very important parameter in determining the optimal size of an enterprise. For this purpose, the division of costs into fixed and variable is used.

Fixed costs- the costs of a company that it incurs regardless of the volume of its production activities. These include: rent for premises, equipment costs, depreciation, property taxes, loans, wages for management and administrative staff.

Variable costs– costs of the company, which depend on the volume of production. These include: costs of raw materials, advertising, wages, transport services, value added tax, etc. When production expands, variable costs increase, and when production decreases, they decrease.

The division of costs into fixed and variable is conditional and is acceptable only for a short period, during which a number of factors of production are unchanged. In the long run, all costs become variable.

Gross costs is the sum of fixed and variable costs.

They represent the firm's cash costs to produce products. The connection and interdependence of fixed and variable costs as part of general costs can be expressed mathematically (formula 18.2) and graphically (Fig. 18.2).

F.C.+ V.C.= TC;

TC– F.C.=VC;

TC– V.C.= FC, (18.2)

Where F.C.– fixed costs; V.C.– variable costs; TC– total costs.

Rice. 18.2.Total firm costs

C– firm costs; Q– quantity of products produced; FG– fixed costs; VG– variable costs; TG– gross (total) costs.

4. Average costs.Average costs is the gross cost per unit of production.

Average costs can be calculated at the level of both fixed and variable costs, therefore all three types of average costs are usually called family of average costs.

Where ATC– average total costs; A.F.C.– average fixed costs; AVC– average variable costs; Q– quantity of products produced.

You can perform the same transformations with them as with constants and variables:

ATC= AFC+AVC;

AFC= ATC– AVC;

AVC= ATC– A.F.C.

The relationship between average costs can be depicted on a graph (Fig.

18.3. Average firm costs

C – company costs; Q – quantity of products produced.

5. Marginal firm.

It is important for an entrepreneur to know how his average total costs atc correlate with market avc at a price. In this case, three situations are possible when market prices:

a) lower costs;

b) higher costs;

c) equal to costs.

In situation a) the firm will be forced to exit the market. As a consequence, if demand remains unchanged, prices will rise and situation c) will occur.

In situation b) the firm will receive high income and other firms will join it. As a result, supply will exceed demand and prices will fall to c).

In situation c) the minimum value of average total costs coincides with the market price, i.e., it only covers it. It would seem that there is no incentive here - profit and the company will have to leave the market. But that's not true. The fact is that entrepreneurs include in their costs not only fixed and variable costs, but also opportunity costs. Therefore, in this situation there is a profit, but there is no excess profit due to the excess of demand over supply. Situation c) is the most typical on the market, and the company that finds itself in it is usually called ultimate by the company.

6. Marginal costs. An entrepreneur wants to know not only the minimum cost per unit of production, but also for the entire production volume. To do this, it is necessary to calculate marginal costs.

Marginal cost- These are additional costs associated with the production of one more additional unit of output.

Where MS– marginal costs; ?TC – change in total costs; ? Q– change in product output.

Calculation of marginal costs in comparison with average total and variable costs allows the entrepreneur to determine the volume of production at which his costs will be minimal.

A firm, increasing its production volume, incurs additional (marginal) costs for the sake of additional benefits, additional (marginal) income.

Marginal Revenue- This is the additional income that arises when production increases per unit of output.

Marginal revenue is closely related to gross income firm is its increase.

Gross income depends on the price level and production volumes, i.e.

TR= P x Q, (18.6)

Where TR- gross income; P- the price of the product; Q– volume of production of goods.

Then the marginal revenue is:

Where M.R.– marginal income.

7. Long-term costs. IN market economy firms strive to develop a strategy for their development, which cannot be implemented without increasing production capacity and technical improvement of production. These processes take a long period, which leads to discreteness (discontinuity) of the state of the company over short periods (Fig. 18.4).

Rice. 18.6.Average costs in the long run

ATC– average total costs; ATC j-ATCV – average costs; LATC– long-term (resulting) average total cost curve.

The intersection line of the ATC curves, projected on the horizontal axis of the graph, shows at what volumes of production it is necessary to change the size of the plant to ensure further reduction in unit costs, and the point M shows the best production volume for the entire long period. curve LATC V educational literature often also called selection curve, or wrapping curve.

Arcing LATC associated with positive and negative effects of increased scale of production. Up to point M the effect lasts positive character, and then negative. The scale effect does not always immediately change its sign: between positive and negative periods there may be a zone of constant returns from growth in production, where ATS will remain unchanged.

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Classification of a company's costs in the short term.

When analyzing costs, it is necessary to distinguish costs for the entire output, i.e. general (full, total) production costs, and production costs per unit of production, i.e. average (unit) costs.

Considering the costs of the entire output, one can find that when the volume of production changes, the value of some types of costs does not change, while the value of other types of costs is variable.

Fixed costs(F.C. – fixed costs) are costs that do not depend on the volume of production. These include the costs of maintaining buildings, major renovation, administrative and management expenses, rent, property insurance payments, some types of taxes.

The concept of fixed costs can be illustrated in Fig. 5.1. Let us plot the quantity of products produced on the x-axis (Q), and on the ordinate - costs (WITH). Then the fixed cost schedule (FC) will be a straight line parallel to the x-axis. Even when the enterprise does not produce anything, the value of these costs is not zero.

Rice. 5.1. Fixed costs

Variable costs(V.C. – variable costs) are costs, the value of which varies depending on changes in production volumes. Variable costs include costs of raw materials, supplies, electricity, workers' compensation, and costs of auxiliary materials.

Variable costs increase or decrease in proportion to output (Fig. 5.2). In the initial stages of production

Rice. 5.2. Variable costs

production, they grow at a faster rate than manufactured products, but as optimal output is reached (at the point Q 1) the growth rate of variable costs is decreasing. At larger companies unit costs There is less per unit of output due to increased production efficiency, ensured by a higher level of specialization of workers and more complete use of capital equipment, so the growth of variable costs becomes slower than the increase in output. Subsequently, when the enterprise exceeds its optimal size, the law of diminishing returns comes into play and variable costs again begin to outstrip production growth.

Law of Diminishing Marginal Productivity (Profitability) states that, starting from a certain point in time, each additional unit of a variable factor of production brings a smaller increase in total output than the previous one. This law takes place when any factor of production remains unchanged, for example, production technology or the size of the production territory, and is valid only for a short period of time, and not over a long period of human existence.

Let us explain the operation of the law using an example. Let's assume that the enterprise has a fixed amount of equipment and workers work in one shift. If an entrepreneur hires an additional number of workers, work can be carried out in two shifts, which will lead to an increase in productivity and profitability. If the number of workers increases further, and workers begin to work in three shifts, then productivity and profitability will increase again. But if you continue to hire workers, there will be no increase in productivity. Such a constant factor as equipment has already exhausted its capabilities. The addition of additional variable resources (labor) to it will no longer give the same effect; on the contrary, starting from this moment, the costs per unit of output will increase.

The law of diminishing marginal productivity underlies the behavior of the profit-maximizing producer and determines the nature of the supply function on price (the supply curve).

It is important for an entrepreneur to know to what extent he can increase production volume so that variable costs do not become very large and do not exceed the profit margin. The differences between fixed and variable costs are significant. A manufacturer can control variable costs by changing the volume of output. Fixed costs must be paid regardless of production volume and are therefore beyond the control of management.

General costs(TS– total costs) is a set of fixed and variable costs of the company:

TC= F.C. + V.C..

Total costs are obtained by summing the fixed and variable cost curves. They repeat the configuration of the curve V.C., but are spaced from the origin by the amount F.C.(Fig. 5.3).

Rice. 5.3. General costs

For economic analysis, average costs are of particular interest.

Average costs is the cost per unit of production. The role of average costs in economic analysis is determined by the fact that, as a rule, the price of a product (service) is set per unit of production (per piece, kilogram, meter, etc.). Comparing average costs with price allows you to determine the amount of profit (or loss) per unit of product and decide on the feasibility of further production. Profit serves as a criterion for choosing the right strategy and tactics for a company.

The following types of average costs are distinguished:

Average fixed costs ( AFC – average fixed costs) – fixed costs per unit of production:

АFC= F.C. / Q.

As production volume increases, fixed costs are distributed across all large quantity products, so that average fixed costs decrease (Fig. 5.4);

Average variable costs ( AVC – average variable costs) – variable costs per unit of production:

AVC= V.C./ Q.

As production volume increases AVC first they fall, due to increasing marginal productivity (profitability) they reach their minimum, and then, under the influence of the law of diminishing returns, they begin to increase. So the curve AVC has an arched shape (see Fig. 5.4);

average total costs ( ATS – average total costs) – total costs per unit of production:

ATS= TS/ Q.

Average costs can also be obtained by adding average fixed and average variable costs:

ATC= A.F.C.+ AVC.

The dynamics of average total costs reflects the dynamics of average fixed and average variable costs. While both are decreasing, average total costs are falling, but when, as production volume increases, the growth of variable costs begins to outpace the fall in fixed costs, average total costs begin to rise. Graphically, average costs are depicted by summing the curves of average fixed and average variable costs and have a U-shape (see Fig. 5.4).

Rice. 5.4. Production costs per unit of production:

MS – limit, AFC – average constants, АВС – average variables,

ATS – average total production costs

The concepts of total and average costs are not enough to analyze the behavior of a company. Therefore, economists use another type of cost - marginal.

Marginal cost(MS – marginal costs) are the costs associated with producing an additional unit of output.

The marginal cost category is of strategic importance because it allows you to show the costs that the company will have to incur if it produces one more unit of output or
save if production is reduced by this unit. In other words, marginal cost is a value that a firm can directly control.

Marginal costs are obtained as the difference between total production costs ( n+ 1) units and production costs n product units:

MS= TSn+1 – TSn or MS=D TS/D Q,

where D is a small change in something,

TS– total costs;

Q- volume of production.

Marginal costs are presented graphically in Figure 5.4.

Let us comment on the basic relationships between average and marginal costs.

1. Marginal costs ( MS) do not depend on fixed costs ( FC), since the latter do not depend on production volume, but MS- These are incremental costs.

2. While marginal costs are less than average ( MS< AC), the average cost curve has a negative slope. This means that producing an additional unit of output reduces average cost.

3. When marginal costs are equal to average ( MS = 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).

4. When marginal costs become greater than average costs ( MS> AC), the average cost curve slopes upward, indicating an increase in average costs as a result of producing an additional unit of output.

5. Curve MS intersects the average variable cost curve ( ABC) and average costs ( AC) at the points of their minimum values.

To calculate costs and evaluate the production activities of an enterprise in the West and in Russia, various methods are used. Our economy has widely used methods based on the category production costs, which includes the total costs of production and sales of products. To calculate the cost, costs are classified into direct, directly going towards the creation of a unit of goods, and indirect, necessary for the functioning of the company as a whole.

Based on the previously introduced concepts of costs, or costs, we can introduce the concept added value, which is obtained by subtracting variable costs from the total income or revenue of the enterprise. In other words, it consists of fixed costs and net profit. This indicator is important for assessing production efficiency.

Financial planning is necessary for the normal functioning of any company, forecasting production efficiency and profitability of all areas of activity. Its basis is a detailed analytical picture of all income received and costs incurred, which are classified as fixed and variable costs. This article will tell you what these terms mean, what criteria are used to distribute expenses in an organization, and why there is a need for such a division.

What are costs in production

The components of the cost of any product are costs. They all differ in the characteristics of their formation, composition, and distribution, depending on the production technology and available capacities. It is important for the economist to divide them according to cost elements, corresponding items and place of origin.

Expenses are classified into different categories. For example, they can be direct, that is, incurred directly in the production process of the product (materials, machine operation, energy costs and wages of shop personnel), and indirect, proportionally distributed over the entire range of products. These include costs that ensure the maintenance and functionality of the company, for example, the uninterruption of the technological process, utility costs, salaries of the auxiliary and management units.

In addition to this division, costs are divided into fixed and variable. We will consider them in detail.

Fixed production costs

Costs, the value of which does not depend on the volume of products produced, are called constant. They usually consist of costs vital for the normal implementation production process. These are costs for energy resources, rent of workshops, heating, marketing research, AUR and other general business expenses. They are permanent and do not change even during short-term downtime, because the lessor charges rent in any case, regardless of the continuity of production.

Despite the fact that fixed costs remain unchanged over a certain (specified) period of time, fixed costs per unit of output change in proportion to the volume produced.
For example, fixed costs amounted to 1000 rubles, 1000 units of product were produced, therefore, each unit of production has 1 ruble of fixed costs. But if not 1000, but 500 units of a product are produced, then the share of fixed costs in a unit of goods will be 2 rubles.

When fixed costs change

Note that fixed costs are not always constant, since companies develop production capacity, update technology, increase space and the number of employees. IN similar cases fixed costs also change. When conducting economic analysis, you need to take into account short periods when fixed costs remain constant. If an economist needs to analyze a situation over a long period of time, it is more appropriate to break it down into several short time periods.

Variable costs

In addition to the fixed costs of the enterprise, there are variables. Their value is a value that changes with fluctuations in output volumes. Variable expenses include:

According to the materials used in the production process;

According to the wages of shop workers;

Insurance deductions from payroll;

Depreciation of workshop equipment;

On the operation of vehicles directly involved in production, etc.

Variable costs vary in proportion to the quantity of goods produced. For example, doubling production volume is impossible without doubling total variable costs. However, the cost per unit of production will remain unchanged. For example, if the variable costs for producing one unit of product are 20 rubles, it will take 40 rubles to produce two units.

Fixed costs, variable costs: division into elements

All costs - fixed and variable - constitute the total costs of the enterprise.
To correctly reflect costs in accounting, calculate the sales value of a manufactured product and carry out an economic analysis of the company’s production activities, all of them are taken into account according to cost elements, dividing them into:

• supplies, materials and raw materials;
• staff remuneration;
• insurance contributions to funds;
• depreciation of fixed and intangible assets;
• others.

All costs allocated to elements are grouped into cost items and accounted for as either fixed or variable.

Example of cost calculation

Let us illustrate how costs behave depending on changes in production volume.

Analyzing the change in the price of a product, the economist concludes: fixed costs did not change in January, variables increased in proportion to the increase in the volume of product output, and the cost of the product decreased. In the presented example, the decrease in the price of the product is due to the constant costs of fixed costs. By predicting changes in costs, the analyst can calculate the cost of the product in the future reporting period.

Probably every person who has worked for the “owner” for at least one day wants to start their own business and be their own boss. But in order to open your own business, which will bring good income, you need to correctly set up a financial model economic activity.

Financial model of the enterprise

Why is this necessary? In order to have a correct idea of ​​future income, what level constant and variable expenses enterprises, understand where they will need to strive and what financial policy to use when making decisions.

Basis of construction successful business is its commercial component. According to economic theory, money is goods that can and should generate new goods. If you start your own business, you need to understand that its profitability must come first, otherwise the person will engage in philanthropy.

You can't work at a loss

Profit is equal to the difference between income and costs, which are divided into fixed and variable expenses of the enterprise. When expenses are greater than income, profit turns into loss. The main task of an entrepreneur is to ensure that the business generates maximum income with minimal use of available resources.

This means that you should always strive to sell as many goods or services as possible, while reducing the level of costs of the enterprise.

If everything is more or less clear with income (how much you produced, how much you sold), then with expenses it’s much more complicated. In this article we will look at fixed and variable costs, as well as how to optimize costs and find a middle ground.

In this article, expenses, costs and expenses, as well as in economic literature, will be used as synonymous words. So what types of costs are there?

Types of expenses

All enterprise costs can be divided into fixed and variable costs. This division allows for prompt budgeting and planning of the necessary resources to conduct the business of the enterprise.

Fixed costs are those costs whose level does not depend on the volume of products produced. That is, no matter how many units you produce, your fixed costs will not change.

Variable and semi-fixed costs have different effects on production activities. Why conditionally constant? Because not all types of expenses can be classified as constant, since they can change their properties and accounting procedures from time to time.

What do variable and fixed costs include?

For example, such expenses may include salaries of administrative and management personnel, but only if they receive money regardless of the financial results of the enterprise. Despite the fact that in the West managers have long been making money on their managerial and organizational skills, increasing their client base and expanding markets, in most enterprises Russian Federation heads of different structures receive a stable monthly salary without reference to work results.

This leads to the fact that a person simply has no incentive to improve anything in his work. Because of this, labor productivity is at a low level, and the desire to move forward to new technological processes is generally at zero.

Fixed expenses

In addition to management salaries, rental payments can be considered fixed expenses. Imagine what you are doing tourism business and you don't have your own premises.

In this case, you will be forced to pay someone to rent the commercial property. And no one is saying that this is the worst option. The cost of building your own office from scratch is very high and in many cases will not pay off even in 5-10 years if the business is small or middle class.

Therefore, many people prefer to take the necessary square meters as rent. And you can immediately guess that regardless of whether your business has gone well or you are in deep loss, the landlord will demand the monthly payment specified in the contract.

What could be more stable in accounting than paying wages? This is depreciation. Any fixed asset must be depreciated month after month until its initial cost is zero.

Methods for calculating depreciation may be different, but, of course, within the framework of the law. These monthly expenses are also considered fixed costs of the enterprise.

There are many more such examples: communication services, communications, waste removal or recycling, provision of necessary working conditions, etc. Their main feature is that they are easy to calculate both in the current period and in future ones.

Variable expenses

Such costs are those that vary in direct proportion to the volume of products produced or services provided.

For example, in the balance sheet there is such a line as raw materials and materials. They indicate total cost those funds that the enterprise needs for production activities.

Let's assume that to produce one wooden box you need 2 square meters wood Accordingly, to create a batch of 100 such units of product you will need 200 sq.m of material. Therefore, such costs can be safely classified as variable.

Wages can relate not only to fixed, but also to variable expenses. This will happen in cases where:

• the changed volume of production requires a change in the number of employees employed in the manufacturing process;
• workers receive percentages that correspond to deviations in working standard production.

Under such circumstances, it is quite difficult to plan the amount of labor costs in the long term, since it will depend on at least two factors.

Also, in the process of production activities, fuel and various types of energy resources are consumed: light, gas, water. If all these resources are used directly in the manufacturing process (for example, the production of a car), then it would be logical that a large batch of products would require an increased amount of energy consumption.

Why do you need to know what fixed and variable costs exist?

Of course, such a classification of costs is needed to optimize the cost structure in order to increase profits. That is, you can immediately understand which costs you can save on, and which ones will exist in any case, and they can be reduced only by reducing the level of production. What does an analysis of variable and fixed costs look like?

Let's say you produce furniture at an industrial level. Your cost items are as follows:

• raw materials and supplies;
• wage;
• depreciation;
• electricity, gas, water;
• other.

So far everything is easy and clear.

The first step is to divide all this into fixed and variable expenses.

Permanent:

1. Salaries of directors, accountants, economists, lawyers.
2. Depreciation deductions.
3. Used electrical energy for lighting.

The variables include the following.

1. Wages of workers, the standardized number of which depends on the volume of furniture produced (one or two shifts, the number of people in one assembly box, etc.).
2. Raw materials and supplies necessary to produce one unit of product (wood, metal, fabric, bolts, nuts, screws, etc.).
3. Gas or electricity, if these resources are consumed directly for the manufacture of furniture. For example, this is the electricity consumption of various furniture assembly machines.

Impact of expenses on production costs

So, you have listed all the expenses of your business. Now let's see what role fixed and variable costs play in cost. It is necessary to go through all the fixed costs and see how the structure of the enterprise can be optimized so that less management personnel are involved in production during the production process.

The breakdown of fixed and variable expenses above shows where to start. You can save on energy resources either by switching to alternative sources, or by modernizing in order to increase the level of equipment efficiency.

After this, it’s worth going through all the variable costs, tracking which of them depend more or less on external factors, and which ones can be counted with confidence.

Once you understand the cost structure, you can easily transform any business to suit the needs and requirements of any owner and his strategic plans.

If your goal is to reduce product costs in order to win several positions in the sales market, then you should pay more attention to variable costs.

Of course, as soon as you understand what constitutes fixed and variable expenses, you will be able to easily navigate and quickly understand where you need to “tuck your tails between your legs” and where you can “loose your belts.”