Total variable cost formula. Costs. Production cost formulas

If an organization's variable costs per unit of output are reduced by 15%, assuming other factors remain constant, then the break-even point will be:

x - 34x = 200000

x = 3571 units of production.

A reduction in variable costs per unit of production by 15% (6 rubles) will cause a decrease in sales volume by only 10.8% (429 rubles).

In practice, it is very difficult to change this or that indicator in a favorable direction: production is planned with maximum savings, and actual costs are slightly higher than expected.

A variation of the equation method is the marginal analysis method. The main category of marginal analysis is marginal income.

Marginal income is the difference between revenue from sales of products and variable costs. Marginal income is intended to recover fixed costs and generate a profit. In other words, the profit from the sale of products in combination with fixed costs is understood as the marginal income of the organization.

The following formula is used to calculate profit:

Profit = total contribution margin - total fixed costs.

Since at the break-even point profit is zero, we get:

Marginal income per unit of product sales volume = total fixed costs.

Thus, the formula for calculating the break-even point using the contribution margin method will be as follows:

Break-even point = Total fixed costs / Contribution margin per unit.

The purpose of marginal analysis is to determine the volume of products sold at which sales revenue is equal to its full cost.

Let's calculate the break-even point in units of production based on the data given in example 1.

To calculate the break-even point, it is necessary to calculate the marginal income per unit of product, which will be equal to the difference between the organization’s profit per unit sold and variable expenses per unit of production. We get:

Break-even point = 200,000: (90-40) = 4,000 units of production.

Using marginal analysis, it is possible to establish not only the break-even point of production volume, but also the critical level of the amount of fixed costs, as well as prices at a given value of other factors.

The critical level of fixed costs at a given level of marginal income and sales volume is calculated as follows:

PZkr = Vn (C - PR) = Vn

Md,(9)

Where C

— unit price of products sold;

ETC— variable costs per unit of production;

PZkr— critical level of fixed costs;

— quantity of products sold in natural units;

Md— marginal income per unit of production.

The point of this calculation is to determine the maximum allowable amount of fixed costs, which is covered by marginal income for a given volume of production, price and level of variable costs per unit of production. If fixed costs exceed this level, the company will be unprofitable.

In addition to the indicators discussed above, it is necessary to calculate such an indicator as the marginal safety margin indicator (financial stability margin).

Marginal safety margin is a value showing the excess of actual revenue from product sales over its threshold (critical) value:

MZP = Vf - Vkr

Where minimum wage

— marginal safety margin;

Vf— actual volume of revenue;

— critical (threshold) revenue volume.

in percentage terms:

MZP = (Vf - Vkr) / Vf

100% ,(11)

The marginal margin of safety shows by what percentage the actual production volume is higher than the critical (threshold) volume, that is, how much the organization can reduce sales volume without threat financial situation. The higher the marginal safety margin, the better for the enterprise.

Let's build a general graph of the relationship between costs, production volume and profit, on which we will also depict marginal income and marginal safety margin.

Fig.7.1. The relationship between costs, production volume and profit.

On the graph, the difference between sales revenue and variable costs is marginal income, the value of which also shows the sum of fixed costs and profit from sales. The line segment from the critical revenue volume (Vkr) to the actual volume (Vf) represents the marginal safety margin.

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The production costs of a business can be divided into two categories: variable and fixed costs. Variable costs depend on changes in production volume, while constant costs remain fixed. Understanding the principle of classifying costs into fixed and variable is the first step to managing costs and improving production efficiency.

Methods for determining the break-even point

Knowing how to calculate variable costs will help you reduce your unit cost, making your business more profitable.

Steps

1 Calculation of variable costs

1 Classify costs into fixed and variable. Fixed costs are those costs that remain unchanged when production volume changes. For example, this could include rent and salaries of management personnel. Whether you produce 1 unit or 10,000 units in a month, these costs will remain approximately the same. Variable costs change with changes in production volume. For example, these include the costs of raw materials, packaging materials, product delivery costs and wages of production workers. The more products you produce, the higher your variable costs will be.
Now that you understand the difference between fixed and variable costs, try classifying all the costs of your business. Many of them will be easy to classify into one category or another, while others will not be so clear cut.
Some (combined) costs that do not behave strictly as fixed or variable are difficult to classify. For example, employee salaries may consist of a fixed salary and a percentage of commissions on sales volume. Such costs are best broken down into fixed and variable components. IN in this case commissions on sales volume will be classified as variable costs.
2 Add together all the variable costs for the time period under consideration. Having identified all variable costs, calculate their total value for the analyzed period of time. For example, your manufacturing operations are fairly simple and involve only three types of variable costs: raw materials, packaging and shipping costs, and workers' wages. The sum of all these costs will be the total variable costs.
Let’s assume that all your variable costs for the year in monetary terms will be as follows: 350,000 rubles for raw materials and materials, 200,000 rubles for packaging and delivery costs, 1,000,000 rubles for workers’ wages.
Total variable costs for the year in rubles will be:

2 Application of the minimax calculation method

1 Identify combined costs. Sometimes some costs cannot be clearly classified as variable or fixed costs. Such costs may vary depending on the volume of production, but may also be present when production is at a standstill or there are no sales. Such costs are called combined costs. They can be broken down into fixed and variable components to more accurately determine the amount of fixed and variable costs.
An example of a combined cost is employee wages, which consists of salary and a commission percentage of sales. The employee receives a salary even in the absence of sales, but his commission depends on the volume of product sales. In this case, salary is a fixed cost, and commissions are a variable cost.
Combined costs may also occur in wages piece workers, if you guarantee them payment for a fixed amount of working hours in each billing period. The fixed volume of employment will be attributed to fixed costs, and all additional work time– to variables.
In addition, bonuses paid to employees can also be classified as combined costs.
More complex example The combined costs will be utility bills. You will have to pay for electricity, water and gas even when there is no production. However, for the most part, these costs will depend on the volume of production. To break them down into constant and variable components, a slightly more complex calculation method is required.
2 Estimate costs according to the level of production activity. To break down combined costs into fixed and variable components, you can use the minimax method. This method estimates the combined costs of the months with the highest and lowest production volumes and then compares them to identify the variable cost component. To begin the calculation, you must first identify the months with the highest and lowest volume of manufacturing activity (output). For each month under consideration, record production activity in some measurable quantity (for example, machine hours expended) and the corresponding amount of combined costs.
Let's say that your company uses a waterjet cutting machine in production to cut metal parts. For this reason, your company has variable water costs for production, which depend on its volume. However, you also have constant water costs associated with maintaining your business (for drinking, utilities, and so on). In general, the costs for water in your company are combined.
Let's say that in the month with the highest volume of production, your water bill was 9,000 rubles, and at the same time you spent 60,000 machine hours on production. And in the month with the lowest production volume, the water bill was 8,000 rubles, while 50,000 machine hours were spent.
3 Calculate the variable cost per unit of production (VCR). Find the difference between the two values of both indicators (costs and production) and determine the value of variable costs per unit of production. It is calculated as follows:
4 Determine the total variable costs. The value calculated above can be used to determine the variable part of the combined costs. Multiply the variable costs per unit of production by the appropriate level of production activity. In the example under consideration, the calculation will be as follows:

3 Using variable cost information in practice

1 Assess trends in variable costs. In most cases, increasing production volume will make each additional unit produced more profitable. This happens because fixed costs are distributed across large quantity units of production. For example, if a business that produced 500,000 units of product spent 50,000 rubles on rent, these costs in the cost of each unit of production amounted to 0.10 rubles. If the production volume doubles, then rental costs per unit of production will already be 0.05 rubles, which will allow you to get more profit from the sale of each unit of goods. That is, as sales revenue increases, the cost of production also increases, but at a slower pace (ideally, in the unit cost of production, the variable costs per unit should remain unchanged, and the component of the fixed costs per unit should fall).
To understand whether the level of variable costs per unit remains constant, divide total variable costs by revenue. This way you can understand what percentage of your variable costs are in revenue. If you conduct a dynamic analysis of this value by period, you can understand whether the variable costs per unit of production are changing in one direction or another.
For example, if total variable costs for one year amounted to 70,000 rubles and for the next - 80,000 rubles, while revenue was received in the amount of 1,000,000 and 1,150,000 rubles, respectively, you can verify that the variable costs per unit of production are have been quite stable over the years:
However, for companies with a higher share of fixed costs, it is much easier to take advantage of economies of scale (increased production leads to lower unit costs). This is due to the fact that revenue from increased production grows faster than production costs.
For example, a company developing software, there are significant fixed costs associated with developing programs and paying staff, but it is able to increase sales without a significant increase in variable costs.
On the other hand, if sales decline, a company with a high share of variable costs will find it easier to cut production and remain profitable than a company with a high share of fixed costs (it will have to find a way out and decide what to do with high fixed costs per unit of output). .
A company with high fixed and low variable costs has high production leverage, which makes its profit or loss highly dependent on the volume of revenue. Essentially, sales above a certain level are noticeably more profitable, and below it, sales are noticeably more costly.
Ideally, a company should find a balance between risk and profitability by adjusting the level of fixed and variable costs.
3 Swipe comparative analysis with companies in the same industry. First, calculate your company's variable costs per unit. Then collect data on the value of this indicator from companies in the same industry. This will give you a starting point for assessing your company's performance. Higher variable costs per unit may indicate that a company is less efficient than others; whereas a lower value of this indicator can be considered a competitive advantage.
The value of variable costs per unit of output above the industry average indicates that the company spends more money and resources (labor, materials, utilities) on production than its competitors. This may indicate its low efficiency or the use of too expensive resources in production. In any case, it will not be as profitable as its competitors unless it cuts its costs or increases its prices.
On the other hand, a company that is able to produce the same goods at a lower cost is selling competitive advantage in obtaining greater profits from the established market price.
This competitive advantage may be based on the use of cheaper materials, cheaper labor or more efficient production facilities.
For example, a company that purchases cotton at a lower price than other competitors can produce shirts with lower variable costs and charge lower prices for the products.
Public companies publish their reports on their websites, as well as on the websites of the exchanges on which their securities are traded. Information about their variable costs can be obtained by analyzing the "Income Statements" of these companies.
4 Conduct a break-even analysis. Variable costs (if known) combined with fixed costs can be used to calculate the break-even point for a new manufacturing project. The analyst is able to draw a graph of the dependence of fixed and variable costs on production volumes. With its help, he will be able to determine the most profitable level of production.
For example, if a company plans to start producing a new product, which requires a one-time investment of 100,000 rubles, you will want to know how much product will need to be produced and sold in order to recoup this investment and start making a profit. To do this, it will be necessary to add the sum of investments and other fixed costs with variable costs and subtract the total from revenue at various levels of production.
Mathematically, the break-even point can be calculated using the following formula:
For example, if additional fixed costs during production amount to 50,000 rubles (on top of the original 100,000 rubles, giving a total of 150,000 rubles in fixed costs), variable costs will be equal to 1 ruble per unit of production, and the selling price will be set at 4 rubles, then the break-even point will be calculated as follows: which will result in 50,000 units of production.

Please note that the calculations given in the examples also apply to calculations in other types of currencies.

Sent by: Nikitina Alla. 2017-11-11 18:26:20

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 changes 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 are costs whose value is almost independent of changes in the volume of production. Fixed costs include: salaries of management personnel, communication services, depreciation of fixed assets, rental payments, etc.

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Per unit of output, 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.).

Total and average costs

Definition

Analysis of the behavior of total and average costs is one of key stages production planning and adoption of appropriate management decisions. Control over them is important not only from the point of view of controlling profitability, but also for forming a pricing policy.

Average Variable Costs

Average variable costs ( English Average Variable Cost, AVC) or variable costs per unit of production are calculated as the ratio of total variable costs to the volume of production.

Formula

where TVC is total variable costs, Q is the volume of production.

Behavior

The behavior of average variable costs depends on various factors, so it is advisable to consider it with an example.

The table presents data on the costs of Integral LLC.

Typically, as production volume increases, average variable costs gradually decrease, reach a minimum, and then begin to gradually increase, as shown in the graph below.

The U-shape of the curve is explained by the principle of variable proportions.

While the enterprise increases production volume and approaches full capacity utilization, average variable costs decrease as the efficiency of use of production equipment increases.
When full load is achieved, costs reach their minimum.
When design capacity is exceeded, the efficiency of production equipment decreases due to increased wear, which leads to an increase in average variable costs.

Average fixed costs

Average fixed costs ( English Average Fixed Cost, AFC) are essentially fixed costs per unit of production.

Formula

where TFC is the total fixed costs, Q is the volume of production.

Behavior

Average fixed costs vary inversely with the volume of production.

What is the break-even point and how to calculate it

With an increase in production volume they decrease, and with a decrease, on the contrary, they increase. Let's assume that the total fixed costs of the enterprise are 750,000. per quarter. With a quarterly production volume of 150 units. products, fixed costs per unit of production will be 5,000 USD, and with a volume of 250 units. already 3,000 USD This relationship is graphically demonstrated in the diagram.

As the volume of production increases, average fixed costs gradually decrease, but they never become equal to 0.

Average total costs

Average total costs ( English Average Total Cost, ATC) or cost per unit of production is one of the key indicators of how effectively a business is using its limited resources.

Formula

where TC is the total costs, Q is the volume of production.

An alternative calculation formula is as follows.

Behavior

The behavior of average total costs varies depending on the portion of the U-shaped curve, as demonstrated in the graph below.

Until full capacity utilization is achieved, average total costs decrease because both average fixed and average variable costs decrease in this area.

When capacity is loaded above full capacity, it can either increase or decrease. It depends on whether average variable costs will increase faster than average fixed costs decrease or not. For this reason, the point of full capacity utilization is not always the minimum of average total costs.

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Variable Cost Examples

Conditionally fixed and conditionally variable costs

In general, all types of costs can be divided into two main categories: fixed (conditionally fixed) and variable (conditionally variable). According to the legislation of the Russian Federation, the concept of fixed and variable costs is present in paragraph 1 of Article 318 Tax Code RF.

Conditionally fixed costs(English) total fixed costs) - an element of the break-even point model, representing costs that do not depend on the volume of output, contrasted with variable costs, which add up to total costs.

In simple terms, these are expenses that remain relatively unchanged over a period of time. budget period, regardless of changes in sales volumes. Examples are: administrative expenses, expenses for rent and maintenance of buildings, depreciation of fixed assets, expenses for their repairs, time wages, on-farm deductions, etc. In reality, these expenses are not constant in the literal sense of the word. They increase with the increase in the scale of economic activity (for example, with the advent of new products, businesses, branches) at a slower pace than the growth of sales volumes, or they grow spasmodically. That's why they are called conditionally constant.

This type of cost largely overlaps with overhead, or indirect costs that accompany the main production, but are not directly related to it.

Detailed examples of semi-fixed costs:

Interest for obligations during the normal operation of the enterprise and maintaining the volume of borrowed funds, a certain amount must be paid for their use, regardless of the volume of production, however, if the volume of production is so low that the enterprise is preparing for bankruptcy , these costs can be neglected and interest payments can be stopped
Enterprise property taxes , since its value is quite stable, are also mainly fixed expenses, however, you can sell property to another company and rent it from it (form leasing ), thereby reducing property tax payments
Depreciation deductions using the linear method of accrual (evenly for the entire period of use of the property) according to the chosen accounting policy, which, however, can be changed
Payment security, watchmen , despite the fact that it can be reduced by reducing the number of workers and reducing the load on checkpoints , remains even during idle time of the enterprise, if it wants to preserve its property
Payment rental depending on the type of production, duration of the contract and the possibility of concluding a sublease agreement, it can act as a variable cost
Salary management personnel under conditions of normal functioning of the enterprise is independent of production volumes, however, with the accompanying restructuring of the enterprise layoffs ineffective managers can also be reduced.

Variable (conditionally variable) costs(English) variable costs) are expenses that change in direct proportion in accordance with an increase or decrease total turnover(revenue from sales). These costs are associated with a business's operations to purchase and deliver products to consumers.

This includes: the cost of purchased goods, raw materials, components, some processing costs (for example, electricity), transportation costs, piecework wages, interest on loans and borrowings, etc. They are called conditional variables because their direct proportional dependence on sales volume actually exists only during a certain period. The share of these costs may change over a certain period (suppliers will raise prices, the rate of inflation of selling prices may not coincide with the rate of inflation of these costs, etc.).

The main sign by which you can determine whether costs are variable is their disappearance when production stops.

Variable Cost Examples

In accordance with IFRS standards, there are two groups of variable costs: production variable direct costs and production variable indirect costs.

Manufacturing variable direct costs- these are expenses that can be attributed directly to the cost of specific products based on primary accounting data.

Manufacturing Variable Indirect Costs- these are expenses that are directly dependent or almost directly dependent on changes in the volume of activity, however, due to the technological features of production, they cannot or are not economically feasible to be directly attributed to the manufactured products.

Examples direct variables costs are:

Costs of raw materials and basic materials;
Energy costs, fuel;
Wages of workers producing products, with accruals for it.

Examples indirect variables costs are the costs of raw materials in complex production. For example, when processing raw materials - coal– produces coke, gas, benzene, coal tar, ammonia. When milk is separated, skim milk and cream are obtained. It is possible to divide the costs of raw materials by type of product in these examples only indirectly.

Break even (BEP — break-even point) - the minimum volume of production and sales of products at which costs will be offset by income, and with the production and sale of each subsequent unit of product the enterprise begins to make a profit. The break-even point can be determined in units of production, in monetary terms, or taking into account the expected profit margin.

Break-even point in monetary terms- such a minimum amount of income at which all costs are fully recouped (profit is equal to zero).

BEP =* Revenue from sales

Or, which is the same thing BEP = = *P (see below for explanation of meanings)

Revenue and expenses must relate to the same period of time (month, quarter, six months, year). The break-even point will characterize the minimum acceptable sales volume for the same period.

Let's look at the example of a company. Cost analysis will help you clearly determine BEP:

Break-even sales volume - 800/(2600-1560)*2600 = 2000 rubles. per month. Actual sales volume is 2600 rubles/month. exceeds the break-even point, this good result for this company.

The break-even point is almost the only indicator about which we can say: “The lower, the better. The less you need to sell to start making a profit, the less likely it is to go bankrupt.

Break-even point in units of production- such a minimum quantity of products at which the income from the sale of these products completely covers all the costs of its production.

Those. It is important to know not only the minimum allowable revenue from sales as a whole, but also the necessary contribution that each product should bring to the total profit - that is, the minimum required number of sales of each type of product. To do this, calculate the break-even point in in kind:

VER =or VER = =

The formula works flawlessly if the enterprise produces only one type of product. In reality, such enterprises are rare. For companies with a large range of production, the problem arises of allocating the total amount of fixed costs to individual species products.

Fig.1. Classic CVP analysis of the behavior of costs, profits and sales volume

Additionally:

BEP (break-even point) - break even,

TFC (total fixed costs) - value fixed costs,

V.C.(unit variable cost) - the value of variable costs per unit of production,

P (unit sale price) - cost of a unit of production (sales),

C(unit contribution margin) - profit per unit of production without taking into account the share of fixed costs (the difference between the cost of production (P) and variable costs per unit of production (VC)).

C.V.P.-analysis (from the English costs, volume, profit - expenses, volume, profit) - analysis according to the “costs-volume-profit” scheme, an element of managing the financial result through the break-even point.

Overhead- costs of conducting business activities that cannot be directly correlated with the production of a specific product and therefore are distributed in a certain way among the costs of all produced goods

Indirect costs- costs that, unlike direct ones, cannot be directly attributed to the manufacture of products. These include, for example, administrative and management costs, costs for staff development, costs in production infrastructure, costs in social sphere; they are distributed among various products in proportion to a justified base: the wages of production workers, the cost of materials consumed, the volume of work performed.

Depreciation deductions- an objective economic process of transferring the value of fixed assets as they wear out to the product or services produced with their help.

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As we remember, we need a business plan not only to understand the goals and ways to achieve them, but also to justify the profitability and possibility of implementing our investment project.

When making calculations for a project, you come across the concept of fixed and variable costs, or expenses.

What are they and what is their economic and practical meaning for us?

Variable expenses, by definition, are those expenses that are not constant. They change. And the change in their value is associated with the volume of products produced. The higher the volume, the higher the variable costs.

What cost items are included in them and how to calculate them?

All resources that are spent on production can be classified as variable costs:

materials;
components;
employees' wages;
electricity consumed by a running machine engine.

Cost of all necessary resources that must be spent to produce a certain volume of output. These are all material costs, plus workers' wages and service personnel, plus the cost of electricity, gas, water spent during the production process, plus packaging and transportation costs. This also includes the costs of creating stocks of materials, raw materials and components.

Variable costs need to be known per unit of output. Then we can calculate at any time total amount variable costs for a certain period of time.
We simply divide the estimated cost of production by the volume of production in physical terms. We obtain variable costs per unit of production.

This calculation is made for each type of product and service.

How does unit costing differ from the variable cost of producing one product or service? Fixed costs are also included in the calculation.

Fixed costs are almost independent of production volumes.

These include:

administrative expenses (costs of maintaining and renting offices, postal services, travel expenses, corporate communications);
production maintenance costs (rent of production premises and equipment, machine maintenance, electricity, space heating);
marketing expenses (product promotion, advertising).

Fixed costs remain constant until a certain point when production volume becomes too large.

An important step for determining variable and fixed costs, as well as everything financial plan is the calculation of personnel costs, which can also be carried out at this stage.

Based on the data we received in terms of organizational structure, staffing table, operating mode, and also based on the production program data, we calculate personnel costs. We make this calculation for the entire period of the project.

It is necessary to determine the amount of remuneration for management personnel, production and other employees, as well as the total amount of expenses.

Don’t forget to take into account taxes and social contributions, which will also be included in the total amount.

All data is presented in tabular form for ease of calculation.

Knowing fixed and variable costs, as well as product prices, you can calculate the break-even point. This is the level of sales that ensures the enterprise’s self-sufficiency. At the break-even point, there is equality in the sum of all costs, fixed and variable, and the income from the sale of a certain volume of products.

Analysis of the break-even level will allow us to draw a conclusion about the sustainability of the project.

An enterprise should strive to reduce variable and fixed costs per unit of production, but this is not a direct indicator of production efficiency. It is necessary to take into account the specifics of the enterprise. High-tech industries may have high fixed costs, while low ones may occur in underdeveloped ones with old equipment. This can also be observed when analyzing variable costs.

The main goal of your company is to maximize economic profit. And this is not only cutting costs in any way, but also using various tools to reduce production and management costs through the use of more productive equipment and increased labor productivity.

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Conditionally fixed costs(English) total fixed costs

In simple terms, these are expenses that remain relatively unchanged during the budget period, regardless of changes in sales volumes. Examples are: administrative expenses, expenses for rent and maintenance of buildings, depreciation of fixed assets, expenses for their repairs, time wages, on-farm deductions, etc. In reality, these expenses are not constant in the literal sense of the word. They increase with the increase in the scale of economic activity (for example, with the advent of new products, businesses, branches) at a slower pace than the growth of sales volumes, or they grow spasmodically.

What do variable costs include (formula)?

That's why they are called conditionally constant.

Interest bankruptcy
leasing
Depreciation
Payment security, watchmen checkpoints
Payment rental
Salary management personnel layoffs

(English) variable costs

Variable Cost Examples

Examples direct variables costs are:

Energy costs, fuel;

Examples indirect variables

Break even (BEP — break-even point

BEP =* Revenue from sales

Or, which is the same thing BEP = = *P

VER =or VER = =

Additionally:

BEP (break-even point) - break even,

TFC (total fixed costs

V.C.(unit variable cost

P (unit sale price

C(unit contribution margin

C.V.P.

Overhead

Indirect costs

Depreciation deductions

Variable costs: what are they, how to find and calculate them

Marginal cost formula

Concept of marginal cost

Formula marginal cost is calculated by the ratio of the increase in total costs to the increase in the quantity of goods. Also, the marginal cost formula is determined by the ratio of the increase in variable costs (the change in the sum of total costs is equal to the change in the variable costs of each additional unit) to the increase in the quantity of goods.

Types of costs

Each enterprise, in its quest to obtain maximum profit, incurs the cost of purchasing production factors, while striving to achieve the level of production of a given volume of products at the lowest cost.

An enterprise cannot influence the price of resources, but knowing the dependence of production volume on the amount of variable costs, costs are calculated.

In accordance with the organization, expenses are classified into groups:

Individual expenses for a specific company,
Social costs are the costs of producing a certain type of product that are borne by the entire economy,
Opportunity costs
Production costs, etc.

Also, costs are classified into 2 groups:

Fixed costs include investments in order to ensure stable production. This type costs are constant and do not depend on production volume;
Variable costs include costs that are subject to easy adjustment without causing damage to the enterprise's activities (they change in accordance with production volumes).

Marginal cost formula

Marginal cost is the change in the total cost of the enterprise in the process of producing each additional unit of a product.

The marginal cost formula is as follows:

MC = TC/Q

Here TC is the increase (change) in total costs;

Q – increase (change) in the volume of product output.

To calculate the increase in total costs, use the following formula:

TS = TS2 TS1

To calculate changes in output, the following equality is used:

Q = Q2 Q1

Substituting these equalities into the marginal cost formula, we obtain the following formula:

MC = (TC2 TC1) / (Q2 Q1)

Here Q1, T1 is the initial quantity of output and the corresponding quantity of costs,

Q2 and TC2 – the new quantity of output and the corresponding value of costs.

Meaning of marginal cost

Calculating marginal costs makes it possible to determine the degree of benefit from producing each additional unit of goods.

Marginal costs are an important economic tool that determines the strategy of industrial development. The level of marginal costs makes it possible to show the volume of production at which the enterprise needs to stop to obtain maximum quantity arrived.

In the case of an increase in production and sales volumes, the enterprise's costs change as follows:

A uniform change indicates that marginal cost is constant, equal to variable cost per unit of output;
The accelerated change reflects rising marginal costs as output increases;
Slow change shows a reduction in the firm's marginal costs if its costs for purchased raw materials decrease with increasing output.

Examples of problem solving

Search Lectures

Variable Cost Examples

Conditionally fixed and conditionally variable costs

Conditionally fixed costs(English)

Variable Cost Examples

total fixed costs) - an element of the break-even point model, representing costs that do not depend on the volume of output, contrasted with variable costs, which add up to total costs.

This type of cost largely overlaps with overhead, or indirect costs that accompany the main production, but are not directly related to it.

Detailed examples of semi-fixed costs:

Interest for obligations during the normal operation of the enterprise and maintaining the volume of borrowed funds, a certain amount must be paid for their use, regardless of the volume of production, however, if the volume of production is so low that the enterprise is preparing for bankruptcy , these costs can be neglected and interest payments can be stopped
Enterprise property taxes , since its value is quite stable, are also mainly fixed expenses, however, you can sell property to another company and rent it from it (form leasing ), thereby reducing property tax payments
Depreciation deductions using the linear method of accrual (evenly for the entire period of use of the property) in accordance with the selected accounting policy, which, however, can be changed
Payment security, watchmen , despite the fact that it can be reduced by reducing the number of workers and reducing the load on checkpoints , remains even during idle time of the enterprise, if it wants to preserve its property
Payment rental depending on the type of production, duration of the contract and the possibility of concluding a sublease agreement, it can act as a variable cost
Salary management personnel under conditions of normal functioning of the enterprise is independent of production volumes, however, with the accompanying restructuring of the enterprise layoffs ineffective managers can also be reduced.

Variable (conditionally variable) costs(English) variable costs) are expenses that change in direct proportion in accordance with the increase or decrease in total turnover (sales revenue). These costs are associated with a business's operations to purchase and deliver products to consumers. This includes: the cost of purchased goods, raw materials, components, some processing costs (for example, electricity), transportation costs, piecework wages, interest on loans and borrowings, etc. They are called conditional variables because their direct proportional dependence on sales volume actually exists only during a certain period. The share of these costs may change over a certain period (suppliers will raise prices, the rate of inflation of selling prices may not coincide with the rate of inflation of these costs, etc.).

The main sign by which you can determine whether costs are variable is their disappearance when production stops.

Variable Cost Examples

In accordance with IFRS standards, there are two groups of variable costs: production variable direct costs and production variable indirect costs.

Manufacturing variable direct costs- these are expenses that can be attributed directly to the cost of specific products based on primary accounting data.

Examples direct variables costs are:

Costs of raw materials and basic materials;
Energy costs, fuel;
Wages of workers producing products, with accruals for it.

Examples indirect variables costs are the costs of raw materials in complex production. For example, when processing raw materials - coal - coke, gas, benzene, coal tar, and ammonia are produced. When milk is separated, skim milk and cream are obtained. It is possible to divide the costs of raw materials by type of product in these examples only indirectly.

Break-even point in monetary terms- such a minimum amount of income at which all costs are fully recouped (profit is equal to zero).

BEP =* Revenue from sales

Or, which is the same thing BEP = = *P (see below for explanation of meanings)

Revenue and expenses must relate to the same period of time (month, quarter, six months, year). The break-even point will characterize the minimum acceptable sales volume for the same period.

Let's look at the example of a company. Cost analysis will help you clearly determine BEP:

Break-even sales volume - 800/(2600-1560)*2600 = 2000 rubles. per month. Actual sales volume is 2600 rubles/month. exceeds the break-even point, this is a good result for this company.

The break-even point is almost the only indicator about which we can say: “The lower, the better. The less you need to sell to start making a profit, the less likely it is to go bankrupt.

Break-even point in units of production- such a minimum quantity of products at which the income from the sale of these products completely covers all the costs of its production.

VER =or VER = =

Fig.1. Classic CVP analysis of the behavior of costs, profits and sales volume

Additionally:

BEP (break-even point) - break even,

TFC (total fixed costs) - the value of fixed costs,

V.C.(unit variable cost) - the value of variable costs per unit of production,

P (unit sale price) - cost of a unit of production (sales),

Indirect costs- costs that, unlike direct ones, cannot be directly attributed to the manufacture of products. These include, for example, administrative and management costs, costs for staff development, costs in production infrastructure, costs in the social sphere; they are distributed among various products in proportion to a justified base: the wages of production workers, the cost of materials consumed, the volume of work performed.

Depreciation deductions- an objective economic process of transferring the value of fixed assets as they wear out to the product or services produced with their help.

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Assessing the behavior of production costs

Dependence of production costs on the level business activity enterprise characterizes the behavior of costs. Business activity An enterprise is determined by the level of use of its production capacity, labor productivity, and the introduction of new technologies. To evaluate cost behavior highest value has the production capacity of the enterprise. Production capacity is the volume of products that the enterprise produces or will be able to produce in the reporting period or in future periods.

There are three types of production capacity: theoretical, practical and normal.

Theoretical Production capacity is the maximum volume of output that a company can achieve if all machines and equipment operate optimally without downtime. In practice, this indicator is used only in analytical calculations to assess the level of production capacity utilization.

Practical production capacity is the theoretical capacity minus equipment downtime, interruptions and other reasonable downtime.

Normal capacity represents the average annual volume of manufactured products required to meet sales needs. When assessing cost behavior, the plant's normal capacity is used.

To assess the behavior of costs, they are classified into:

- permanent;

— variables;

- conditionally permanent.

In addition, it is calculated cost response factor:

Where y - the rate of increase in costs for a certain period;

X - growth rate of business activity of the enterprise.

It is believed that fixed costs remain unchanged over a short period of time. If K r. h.= 0, then the costs are constant.

Variable costs vary depending on production volume. They are divided into proportional, progressive and digressive.

Proportional costs- costs that vary in direct proportion to production volume. If K r. h.= 1, then the costs are proportional.

Progressive Costs - costs, the growth of which outpaces the growth of production volume. If K r. h.

>1, then the costs are considered progressive.

Digressive are costs whose growth rates are lower than the growth rates of production volume. If 0<K r. h.<1, то это дигрессивные затраты.

Each type of cost corresponds to a specific cost behavior chart:

1.proportional 2.progressive 3.digressive

In real life, it is rare to encounter purely fixed or variable costs. In most cases the costs are conditionally constant (conditional variables). These costs contain both variable and fixed components. Such costs include entertainment expenses, advertising expenses, compensation for the use of personal transport, certain types of taxes, etc. Therefore, semi-fixed costs can be presented in the form of a formula:

y = a + b*X,

Where at— the total amount of semi-fixed costs;

A- constant part of costs;

V— cost response coefficient;

X - volume of production (indicator of business activity).

If there is no constant part in this formula, then this type of cost is variable. If the cost response coefficient for this item takes on a zero value, then these costs are of a constant nature.

Related information:

Search on the site:

Search Lectures

Variable Cost Examples

Conditionally fixed and conditionally variable costs

This type of cost largely overlaps with overhead, or indirect costs that accompany the main production, but are not directly related to it.

Detailed examples of semi-fixed costs:

Interest for obligations during the normal operation of the enterprise and maintaining the volume of borrowed funds, a certain amount must be paid for their use, regardless of the volume of production, however, if the volume of production is so low that the enterprise is preparing for bankruptcy , these costs can be neglected and interest payments can be stopped
Enterprise property taxes , since its value is quite stable, are also mainly fixed expenses, however, you can sell property to another company and rent it from it (form leasing ), thereby reducing property tax payments
Depreciation deductions using the linear method of accrual (evenly for the entire period of use of the property) in accordance with the selected accounting policy, which, however, can be changed
Payment security, watchmen , despite the fact that it can be reduced by reducing the number of workers and reducing the load on checkpoints , remains even during idle time of the enterprise, if it wants to preserve its property
Payment rental depending on the type of production, duration of the contract and the possibility of concluding a sublease agreement, it can act as a variable cost
Salary management personnel under conditions of normal functioning of the enterprise is independent of production volumes, however, with the accompanying restructuring of the enterprise layoffs ineffective managers can also be reduced.

The main sign by which you can determine whether costs are variable is their disappearance when production stops.

Variable Cost Examples

In accordance with IFRS standards, there are two groups of variable costs: production variable direct costs and production variable indirect costs.

Manufacturing variable direct costs- these are expenses that can be attributed directly to the cost of specific products based on primary accounting data.

Examples direct variables costs are:

Costs of raw materials and basic materials;
Energy costs, fuel;
Wages of workers producing products, with accruals for it.

Break-even point in monetary terms- such a minimum amount of income at which all costs are fully recouped (profit is equal to zero).

BEP =* Revenue from sales

Or, which is the same thing BEP = = *P (see below for explanation of meanings)

Revenue and expenses must relate to the same period of time (month, quarter, six months, year). The break-even point will characterize the minimum acceptable sales volume for the same period.

Let's look at the example of a company. Cost analysis will help you clearly determine BEP:

Break-even sales volume - 800/(2600-1560)*2600 = 2000 rubles. per month. Actual sales volume is 2600 rubles/month. exceeds the break-even point, this is a good result for this company.

The break-even point is almost the only indicator about which we can say: “The lower, the better. The less you need to sell to start making a profit, the less likely it is to go bankrupt.

Break-even point in units of production- such a minimum quantity of products at which the income from the sale of these products completely covers all the costs of its production.

VER =or VER = =

The formula works flawlessly if the enterprise produces only one type of product. In reality, such enterprises are rare.

Variable costs in an enterprise

For companies with a large range of production, the problem arises of allocating the total amount of fixed costs to individual types of products.

Fig.1. Classic CVP analysis of the behavior of costs, profits and sales volume

Additionally:

BEP (break-even point) - break even,

TFC (total fixed costs) - the value of fixed costs,

V.C.(unit variable cost) - the value of variable costs per unit of production,

P (unit sale price) - cost of a unit of production (sales),

Indirect costs- costs that, unlike direct ones, cannot be directly attributed to the manufacture of products. These include, for example, administrative and management costs, costs for staff development, costs in production infrastructure, costs in the social sphere; they are distributed among various products in proportion to a justified base: the wages of production workers, the cost of materials consumed, the volume of work performed.

Depreciation deductions- an objective economic process of transferring the value of fixed assets as they wear out to the product or services produced with their help.

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2.5.3. Calculation of conditionally fixed and variable costs of coal production costs

OBVMADBEFUS PVTBFOBS ЪBCHYUYNPUFSH.

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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:

Commercial expenses (percentages from sales to sales managers and other remunerations, as well as% paid to outsourcing companies).
Cost of goods produced.
Salary of working personnel (part of the salary, which depends on the standards met).
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 the financial position of the company will be, the more opportunities will appear to attract additional borrowed funds, 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 value of these costs in the overall structure allows us 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:

Are common.
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 further the enterprise is from this point, the higher its financial stability, profitability, and 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.

Variable costs are the company's expenses spent on the production or sale of goods and services, the amount of which varies depending on production volumes. This indicator is used to calculate the possibility of reducing enterprise costs.

The main purpose of calculating variable costs

Any economic indicator serves a single goal - increasing the profitability of the enterprise. Variable costs are no exception. They allow you to analyze the company’s activities and develop a strategy for increasing profitability. Accordingly, this indicator is not included in the balance sheet, since it is needed not for accounting, but for management accounting.

Important! There should be a clear distinction between fixed and variable costs. The first are those whose amount does not change for a long time. For example, office rent, training, retraining of company employees and other fixed costs.

Main types of variable costs

First of all, variable costs are divided into two main subgroups:

Direct– these are expenses that are directly related to the cost of goods (services). For example, costs for materials, wages, etc.
Indirect– these are expenses related to the cost of a group of goods (services). For example, general plant, general warehouse and other types of general costs that affect the cost of all goods or their individual groups.

Some businessmen believe that variable costs are proportional to production volume. However, this is not always the case. Based on production volumes, variable costs are divided into three types:

Progressive. This is a type of cost in which costs increase faster than the growth in sales volumes or production of goods.
Regressive. With this type of cost, expenses lag behind the rate of production or sales of products.
Proportional. This is exactly the case when the increase in costs is directly proportional to the increase in production volumes.

Let's consider an example of changes in variable costs by production volume:

You can also distinguish the type of costs based on their relationship with the production process:

Production costs are costs that are directly related to the goods produced. For example, raw materials, consumables, energy, wages, etc.
Non-production costs are costs that are not directly related to the production of products. For example, transportation, storage, commission payments to dealers and other types of indirect costs.

Accordingly, variable costs include:

Piece-rate payments to employees (bonuses, commissions, percentages of sales, etc.);
travel and other related payments;
costs of storage, transportation and warehousing of goods;
outsourcing and other types of services used to support production;
taxes on the production and/or sale of goods and services;
payment for fuel, energy, water and other utility bills;
costs of purchasing raw materials and consumables for production.

Detailed instructions for calculating variable costs

To calculate costs, you will need to determine the material costs of production. This is done on the basis of the following documents:

reports on the write-off of raw materials, consumables and other materials for the production of goods;
certificates of work completed for the main and auxiliary production processes;
reports of outsourcing companies involved in production;
return certificates for waste materials.

Important! The amount of material costs includes data only on the first three items from this list. The last item (about the return of waste) is deducted from the amount of costs.

Then you need to determine the amount of costs for paying the variable part of salaries to employees of the enterprise. This includes bonuses, interest, commissions, allowances, payments to the Social Insurance Fund and other types of additional payments.

Based on data on actual consumption and prices established in the region of production, the amount of costs for utility costs and fuel is determined.

After this, the amount of costs for packaging, storage and delivery of products is calculated. This can be done on the basis of internal company documents or reports from third-party organizations responsible for these stages of work.

After all this, the amount of tax costs is determined based on the company’s declarations or accounting reports.

Important! Please note that it is possible to reduce variable costs of taxes, fees and other mandatory payments only by making appropriate changes to federal or regional legislative acts. However, they must be taken into account when calculating.

Formula for calculating variable costs

The simplest way to calculate variable costs is to simply add up all costs and then divide by the volume of goods produced over the analyzed period of time. The calculation formula is:

PI = (VI¹ + VI² + VI∞) ÷ OP, Where:

PI – variable costs;
VI – type of costs (fuel, taxes, bonuses, etc.);
OP – production volume.

Example of calculating variable costs

In 2017, Romashka LLC spent on production and sales of products:

350 thousand rubles. for the purchase of materials;
150 thousand rubles. for packaging and storage of goods;
450 thousand rubles. to pay taxes;
750 thousand rubles. for piecework and bonus payments to employees.

Accordingly, the total amount of variable costs amounted to 1.7 million rubles. (350 thousand rubles + 150 thousand rubles + 450 thousand rubles + 750 thousand rubles). The production volume amounted to 500 thousand units of goods. Accordingly, variable costs per unit of production were:

1.7 million rubles. ÷ 500 thousand i.e. = 3 rubles. 40 kopecks

Ways to reduce variable costs

The main way to reduce costs is to use the “economy of scale” strategy. Her idea is that we need to increase production volumes and move from mass production to mass production. In this case, the rate of change in variable costs becomes lower than the rate of production growth.

Economies of scale can be achieved in the following ways:

reduce the cost of maintaining the management sector of employees;
use R&D or other work aimed at improving products;
choose a narrow specialization of production (this helps to significantly reduce the percentage of defects due to a detailed study of the properties of the product);
to establish the production of products similar to the properties of the goods being manufactured (along the technological chain), thereby creating additional production workload.

“To reduce variable costs, you need to increase labor productivity and reduce costs. Most companies can do this by introducing energy-saving technologies, reducing inventories of raw materials and finished goods, as well as by using modern methods of organizing the production process. In some cases, the number of employees should be reconsidered. However, it is not always worth resorting to a total reduction in personnel. Retraining, redistribution of responsibilities and other personnel changes are considered more effective.”

economist-consultant, entrepreneur Stanitsky N.S.