What costs constitute total costs? Types of costs

Depreciation- is a process of gradual transfer of worn-out fixed assets (reflecting their fixed assets) to the product produced with their help. Sinking fund is a fund for the accumulation of depreciation charges in the form of funds accumulated to ensure the reproduction of fixed assets through the replacement and reconstruction of their worn-out elements.

Depreciation charges are a tool for reimbursing fixed assets in the form of accumulated funds used to compensate for worn-out fixed assets through repair, construction, purchase and replacement of worn-out parts. The amount of depreciation is included in the production costs of the product, and therefore in its cost and price.

Depreciation rate fixed assets is the ratio of the annual amount of depreciation to the original cost of fixed assets in percentage terms.

Conventionally, business costs are divided into explicit and implicit.

Explicit business costs- payments by the organization to suppliers of material or labor resources (payment for raw materials, payment of wages).

Implicit business costs- expended resources of the organization that are not subject to payment to an external supplier of resources, since they are the property of the organization (payment for the use of its own warehouses, machines, machines, equipment).

Business costs are divided into costs in the short, medium and long term.

For short term The following situation is typical: all factors of production are constant, an increase (decrease) in demand leads to an increase (decrease) in prices, but does not affect the amount of supply, since the entrepreneur cannot change the capital capacity of the organization.

IN medium term it is only possible to partially change the organization's capital capacity. An increase in demand leads to an increase in prices and an increase in output because the organization can increase some of the factors of production in accordance with demand.

In the long run the entrepreneur can change all capital resources used, taking into account possible changes in market demand for the product. An increase in demand during this period leads to an increase in supply at constant prices or a slight increase in prices for factors of production.

Profit is the total income from the activities of a company or enterprise minus total costs.

1) Based on the volume of distribution costs, economic and accounting profit are distinguished.

Accounting profit is simple difference between sales income (sales income) and expenses (current costs).

Economic(net) profit is the amount that results from deducting additional expenses from accounting profit. Such expenses may include uncompensated own expenses that were not taken into account in the cost of the product, additional bonuses for employees, costs for officials, etc.

That is net profit- This is income minus absolutely all costs.

2) According to the value of the final result, profit can be:

normative or prescribed

maximum possible or minimum acceptable,

not received (lost profit), with a negative result (loss).

3) By the nature of taxation we can distinguish:

taxable income,

and not taxable.

15. ENTERPRISE COSTS IN THE SHORT INTERVAL OF A FIRM (CONSTANT, VARIABLE, GROSS)

Fixed costs- costs that do not depend on the volume of products produced in short periods of time. At their core, fixed costs are the costs of creating conditions for doing business.

Fixed costs include:- obligations under bonded loans; - control and security costs; - rent; - administrative and management expenses; - insurance premiums; - part of depreciation charges; - some types of taxes, etc.

Variable costs- costs, the size of which varies depending on the volume of products produced. Variable costs are actually the costs of the practical implementation of a business project.

These include:- energy and fuel costs; - costs of transport services; - costs of raw materials, materials, semi-finished products, wages to workers, etc.

Gross costs represent a combination of fixed and variable costs

17. EFFECT OF SCALE, PRODUCTION COSTS OVER A LONG INTERVAL OF BUSINESS ACTIVITY.

EffeCTmasshtaba associated with changes in the cost of a unit of output depending on the scale of its production by the company. Considered in the long term. Reducing costs per unit of production during the consolidation of production is called economies of scale. The shape of the long-term cost curve is associated with economies of scale in production.

This is long-term production efficiency that occurs as firms expand in scale, thereby enabling them to reduce production costs through the use of more specialized inputs (skilled labor or more productive capital equipment). However, once a firm reaches a certain size, long-run average and marginal costs increase as the size of the firm increases, thereby reflecting the costs of scale. Costs of scale are long-run production inefficiencies that arise from the fact that expansion of firms beyond a certain size in the long run increases long-run average costs. When firms become very large and their management staff expands, it becomes difficult to control the firm. Firms have many levels of management and their facilities are located in different parts Sveta. Therefore, as companies become larger, their structure becomes more complex, and as production volumes increase, average and marginal costs increase. We have studied a number of provisions relating to price, costs, and the concept of demand. We can now begin to bring them together by looking at the behavior of consumers and firms operating in different markets.

Long term time interval represents a time period the value of which is sufficient to allow changes in the production capacity of the enterprise to occur.

The condition for reducing all costs is always measures such as:

1) improvement of production processes at the enterprise;

2) saving and rational use of resources;

3) growth in labor productivity;

4) availability of modern equipment;

5) careful study of consumer behavior.

18. PERFECT COMPETITION AS A STANDARD OF MARKET EFFICIENCY.

Perfect, free or pure competition is an economic model, an idealized state of the market, when individual buyers and sellers cannot influence the price, but shape it through their input of supply and demand. In other words, this is a type of market structure where the market behavior of sellers and buyers is to adapt to an equilibrium state market conditions.

Features of perfect competition

The number of sellers tends to infinity

All firms produce exactly the same (identical) goods and services.

Equal accessibility in terms of location and time spent by all firms.

All buyers are absolutely informed about the existence of all sellers and ratings for their goods and services

In the case where at least one sign is missing, competition is called imperfect. In the case when these signs are artificially removed in order to occupy a monopoly position in the market, the situation is called unfair competition.

The efficient market hypothesis (EMH) is a hypothesis according to which all significant information is immediately and fully reflected in the market price value of securities. There are weak, medium and strong forms of the efficient market hypothesis. This hypothesis was formulated by the American economist Eugene Fama.

The efficient market hypothesis can be formulated as follows: the market is efficient with respect to any information if it is immediately and completely reflected in the price of the asset. What makes this information useless for obtaining excess profits.

It is customary to distinguish three forms of market efficiency:

a weak form of efficiency if the value of a market asset fully reflects past information regarding this asset (currently publicly available information about the past state of the market, primarily on the dynamics of the exchange value and trading volumes of a financial asset);

the average form of efficiency, if the value of a market asset fully reflects not only past, but also public information (current information that becomes publicly available at the moment, provided in the current press, company reports, speeches of government officials, analytical forecasts, etc.) ;

a strong form of efficiency if the value of a market asset fully reflects all information - past, public and internal (insider information that is known to a narrow circle of people due to official position or other circumstances).

19. PURE MONOPOLY AND ITS CONSEQUENCES FOR THE MARKET.

Pure monopoly is a position in the market for goods and services, characterized by the presence of only one seller of a given type of product or service.

The characteristic features of this situation are: the uniqueness of the product, ownership of the main types of raw materials, low average costs, patent rights, special privileges (licenses). Pure monopolies usually arise where there are no alternatives to a given product or service, or where there are no close substitutes.

A pure monopoly is characterized by high level prices, the further growth of which is restrained only by the risk of declining demand.

The existence of monopolies is inevitable, but the attitude towards them is ambiguous. The main argument of opponents of monopolies is that, taking advantage of their position in the market, they occupy the volume of production, raising prices, receiving greater economic profits. In addition, there is the possibility of higher production costs and less efficient use of resources due to lack of competition. Monopolies try to influence government agencies, worsening the situation on the market, and seeking legislative reinforcement of their position. Supporters of the existence of monopolies question the arguments of the enemy and put forward the following positive features of a monopoly: 1) a monopoly is engaged in economies of scale; 2) the monopoly is engaged in R&D; Large companies account for about 80% of inventions. Monopolies are constantly innovating, thereby prolonging their status as an open monopoly.

21. ENTREPRENEURSHIP IS THE ECONOMIC BASIS OF THE MODERN MARKET.

I'm undertakinggovernment, entrepreneurialactivity- economic activity aimed at systematically generating profit from the production and/or sale of goods and provision of services. For this purpose, property, intangible assets, and labor of both the entrepreneur himself and those brought in from outside are used. There are no guarantees that the money spent will be recouped, that the product produced will be sold at a profit. This involves the risk of loss of all or part of the property.

Entrepreneurship is the most important property of a market economy, permeating all its institutions.

Business(English business - “business”, “enterprise”) or fishing - an activity aimed at making a profit; any type of activity that generates income or other personal benefits.

Currently, one of the main factors in creating a market economic system is the formation and development of entrepreneurial activity. Entrepreneurship is a powerful engine of economic and social development society.

World practice convincingly demonstrates that without the freedom of a market economy, an independent producer and entrepreneurial activity, economic well-being is impossible. It is entrepreneurship, which is associated with the concepts of “dynamism,” “initiative,” and “courage,” that turns many interesting ideas into reality and promotes progress. Therefore, in our opinion, the creation of favorable conditions for the functioning and development of entrepreneurship helps to accelerate economic growth any country.

Entrepreneurial activity provides a powerful incentive to highly productive work, profit and, ultimately, better satisfaction of social needs. The development of entrepreneurship is determined by the state and level of market relations and, above all, by the presence of the necessary conditions for freedom of the private sector in the economy. Thus, entrepreneurship is an integral attribute of a market economy. The main distinguishing feature of entrepreneurial activity is free competition.

Economic activity is a form of individual participation in social production and a way of obtaining financial resources to ensure the livelihoods of himself and his family members. This form of individual participation in social production is one functional public duty or a combination of them when he acts as:

The owner of any objects, real estate, etc., bringing him a constant and guaranteed income;

A hired worker who sells his labor power;

Individual manufacturer;

State or municipal employee;

Manager;

Pensioner;

Pupil or student;

Unemployed;

Engaged in defense and security activities;

Involved in economically criminal activities.

Almost every person dreams of quitting “working for their uncle” and opening their own business, which will bring pleasure and stable income. However, in order to become an aspiring entrepreneur, you will need to create a business plan containing a financial model of the future enterprise. Only this approach to business development will allow you to find out whether the investment in starting your own business can pay off. In this article, we propose to learn about what fixed and variable expenses are and how they affect the profit of the enterprise.

Variable and fixed costs are the two main types of costs.

The importance of drawing up a financial model

Have you ever wondered why you need to draw up a business plan containing a financial model before starting your own business? Creating a business plan allows a novice entrepreneur to obtain information about the expected revenue of the enterprise, as well as determine fixed and variable costs. All these measures are aimed at choosing a development strategy financial policy future business.

The commercial component is one of basic principles successful enterprise. Economic theory says that finance is a benefit that should bring new benefits. It is this theory that needs to be guided in the early stages of entrepreneurial activity. At the heart of every business is the rule that profit is the number one priority. Otherwise, your entire business model will turn into philanthropy.

After we have made it a rule that working at a loss is unacceptable, we should move on to the financial model itself. Enterprise profit is the difference between income and production costs. The latter are divided into two groups: variable and fixed expenses of the organization. In a situation where the level of expenses exceeds current income, the enterprise is considered unprofitable.

The main task of entrepreneurial activity is to extract maximum benefits subject to minimal use of financial resources.

Based on this, we can conclude that to increase income it is necessary to sell as many finished products as possible. However, there is another method of making a profit, which is to reduce production costs. Understanding this scheme is quite difficult, since the process of cost optimization has many different nuances. It is important to mention that these economic terms, as “cost level”, “cost item” and “production costs” are synonymous. Let's look at all the types of manufacturing costs that exist.

Types of expenses

All expenses of an organization are divided into two groups: variable and fixed costs. This division helps to systematize the budgeting process, and also helps in planning a business development strategy.

Fixed costs are expenses, the amount of which has no connection with the production capacity of the enterprise. This means that this amount does not depend on how much product is produced.

Variable costs are costs whose size varies in proportion to changes in the volume of production

Variable costs include conditionally fixed costs associated with entrepreneurial activity. Such expenses can change their properties and magnitude, depending on the impact of internal and external economic factors.

What do different types of expenses include?

Among the fixed expenses are the salaries of members of the enterprise administration, but only in a situation where these employees receive payments regardless of the financial condition of the organization. It is important to note that in foreign countries managers gain income from their organizational skills by expanding the customer base and exploring new market areas. On Russian territory the situation is completely different. Most department heads receive high salaries, which are not tied to the effectiveness of their activities.

This approach to organizing the production process leads to a loss of incentive to achieve better results. This is precisely what can explain the low productivity of labor indicators of many commercial institutions, since the desire to master new technological processes at the top of the company is simply absent.

Speaking about what fixed costs are, it should be mentioned that this item includes rent. Let's imagine private company, which does not have its own property and is forced to rent a small space. In this situation, the company administration must transfer a certain amount to the landlord monthly. This situation is considered standard, since it is quite difficult to recoup the purchase of real estate. Some small and middle class entities will require at least five years to return their invested capital.

It is this factor that explains that many entrepreneurs prefer to enter into an agreement to rent the necessary square meters. As mentioned above, rental costs are constant, since the owner of the premises is not interested financial condition your company. For this person, all that is important is the timely receipt of payment specified in the contract.

Fixed expenses include depreciation costs. Any funds must be depreciated monthly until their initial cost is equal to zero. There are many in various ways depreciation, which are regulated by current legislation. According to experts, there are more than a dozen different examples of fixed costs. These include utility bills, payment for waste removal and recycling, and expenses for providing the conditions necessary for the implementation of labor activity. A key feature of such expenses is the ease of calculating both present and future costs.

Fixed costs - costs, the value of which is almost independent of changes in the volume of production

In the concept " variable costs» includes those types of costs that depend on the proportional volume of goods manufactured. For example, consider a balance sheet item that contains an item related to raw materials and materials. In this paragraph you should indicate the amount of funds that the company will need for production purposes. As an example, consider the activities of a company engaged in the production of wooden pallets. To produce one unit of goods, you need to spend two squares of processed wood. This means that to make one hundred pallets, two hundred square meters of material will be required. It is these expenses that fall into the category of variables.

It should be noted that remuneration of employees may be part of both fixed and variable expenses. Similar cases are observed in the following situations:

1. When increasing the production capacity of an enterprise, it is necessary to attract additional workers that will be involved in the manufacturing process.
2. Employee salaries are interest rate, which depends on various deviations in production process.

Under these conditions, it is very difficult to make a forecast about the necessary expenses in order to pay salaries to employees, since its volume will depend on many different factors. The division of expenses into constant and variable is carried out in order to analyze the profitability of the enterprise, as well as determine the degree of unprofitability of the production process. Please note that for any production activities companies consume various energy resources. These resources include fuel, electricity, water and gas. Since their use is integral part production, an increase in output volumes leads to an increase in the costs of these resources.

What are fixed and variable costs used for?

One of the goals of this cost classification is to optimize production costs. Taking into account such details when creating a financial model of an enterprise allows you to identify those positions that can be reduced to supplement income. Also, such data will help you find out how cost reduction will affect the production capacity of the enterprise.

Below we propose to consider fixed and variable costs examples based on an organization engaged in the production of kitchen furniture. To carry out production activities, the management of such a company needs to invest funds in paying for the lease agreement, utility costs, depreciation costs, purchasing consumables and raw materials, as well as employee salaries. Once the list has been compiled general expenses, all items on this list should be divided into variable and fixed costs.

Knowledge and understanding of the essence of fixed and variable costs is very important for competent business management

The category of fixed expenses includes depreciation costs, as well as salaries of the enterprise administration, including the accountant and director of the company. In addition, this item includes expenses for paying for electrical energy used to illuminate the room. Variable costs include the purchase of raw materials and consumables necessary for the production of an incoming order. In addition, this item includes expenses for utility bills, since some energy resources are used only in the production process itself. This category includes the wages of employees involved in the furniture manufacturing process, since the rate directly depends on the volume of products produced. Transportation costs are also included in the category of variable financial costs of the organization.

How production costs affect the cost of goods

After a financial model of the future enterprise has been created, it is necessary to analyze the influence of variable and fixed costs on the cost of manufactured goods. This allows you to reorganize the company's activities in order to optimize the production process. Such an analysis will help you understand how many personnel will be required to complete a particular task.

Dividing costs into fixed and variable is one of the most important tasks of financial departments of companies

Such a plan allows you to determine the required level of investment in the development of the organization. You can reduce the cost of energy resources by using alternative sources, as well as by purchasing more modernized equipment that has a high efficiency useful action. Next, it is recommended to analyze variable expenses in order to determine their dependence on external factors. These actions will help identify those costs that can be calculated.

All of the above actions allow us to better understand the cost structure of the enterprise, which allows us to modify the organization’s activities in accordance with the chosen development strategy. the main objective– reduce the cost of manufactured goods in order to increase the quantity of products sold.

Each enterprise incurs certain costs in the course of its activities. There are different ones. One of them involves dividing costs into fixed and variable.

The concept of variable costs

Variable costs are those costs that are directly proportional to the volume of products and services produced. If an enterprise produces bakery products, then the consumption of flour, salt, and yeast can be cited as an example of variable costs for such an enterprise. These costs will increase in proportion to the increase in the volume of bakery products produced.

One cost item can relate to both variable and fixed costs. Thus, energy costs for industrial ovens on which bread is baked will serve as an example of variable costs. And the cost of electricity for lighting an industrial building is a fixed cost.

There is also such a thing as conditionally variable costs. They are related to production volumes, but to a certain extent. At a small production level, some costs still do not decrease. If a production furnace is half loaded, then the same amount of electricity is consumed as a full furnace. That is, in this case, when production decreases, costs do not decrease. But as output increases above a certain value, costs will increase.

Main types of variable costs

Here are examples of variable costs of an enterprise:

• The wages of workers, which depend on the volume of products they produce. For example, in a bakery production there is a baker and a packer, if they have piecework wages. This also includes bonuses and rewards to sales specialists for specific volumes of products sold.
• Cost of raw materials. In our example, these are flour, yeast, sugar, salt, raisins, eggs, etc., packaging materials, bags, boxes, labels.
• are the cost of fuel and electricity that is spent on the production process. It could be natural gas or gasoline. It all depends on the specifics of a particular production.
• Another typical example of variable costs are taxes paid based on production volumes. These are excise taxes, taxes under tax), simplified taxation system (Simplified taxation system).
• Another example of variable costs is paying for services from other companies if the volume of use of these services is related to the organization's level of production. These could be transport companies, intermediary firms.

Variable costs are divided into direct and indirect

This division exists because different variable costs are included in the cost of the product differently.

Direct costs are immediately included in the cost of the product.

Indirect costs are distributed over the entire volume of goods produced in accordance with a certain base.

Average variable costs

This indicator is calculated by dividing all variable costs by production volume. Average variable costs can either decrease or increase as production volumes increase.

Let's look at the example of average variable costs in a bakery. Variable costs for the month amounted to 4,600 rubles, 212 tons of products were produced. Thus, average variable costs will be 21.70 rubles/t.

Concept and structure of fixed costs

They cannot be reduced in a short period of time. If output volumes decrease or increase, these costs will not change.

Fixed production costs usually include the following:

• rent for premises, shops, warehouses;
• utility fees;
• administration salary;
• costs of fuel and energy resources that are not consumed production equipment, but for lighting, heating, transport, etc.;
• advertising expenses;
• payment of interest on bank loans;
• purchase of stationery, paper;
• costs of drinking water, tea, coffee for employees of the organization.

Gross costs

All of the above examples of fixed and variable costs add up to gross, that is, the total costs of the organization. As production volumes increase, gross costs increase in terms of variable costs.

All costs, in essence, represent payments for purchased resources - labor, materials, fuel, etc. The profitability indicator is calculated using the sum of fixed and variable costs. An example of calculating the profitability of core activities: divide profit by the amount of costs. Profitability shows the effectiveness of an organization. The higher the profitability, the better the organization performs. If profitability is below zero, then expenses exceed income, that is, the organization’s activities are ineffective.

Enterprise cost management

It is important to understand the essence of variable and fixed costs. With proper management of costs in an enterprise, their level can be reduced and greater profits can be achieved. It is almost impossible to reduce fixed costs, so effective work to reduce costs can be carried out in terms of variable costs.

How can you reduce costs in your enterprise?

Each organization works differently, but basically there are the following areas of cost reduction:

1. Reducing labor costs. It is necessary to consider the issue of optimizing the number of employees and tightening production standards. Some employee can be laid off, and his responsibilities can be distributed among the others, with additional payment for him. extra work. If production volumes increase at the enterprise and the need arises to hire additional people, then you can go by revising production standards and or increasing the volume of work in relation to old employees.

2. Raw materials are an important part of variable costs. Examples of their abbreviations could be as follows:

• searching for other suppliers or changing the terms of delivery by old suppliers;
• introduction of modern economical resource-saving processes, technologies, equipment;

• stopping the use of expensive raw materials or materials or replacing them with cheap analogues;
• carrying out joint purchases of raw materials with other buyers from one supplier;
• independent production of some components used in production.

3. Reduction of production costs.

This may include selecting other rental payment options or subletting space.

This also includes savings on utility bills, which requires careful use of electricity, water, and heat.

Savings on repairs and maintenance of equipment, vehicles, premises, buildings. It is necessary to consider whether it is possible to postpone repairs or maintenance, whether it is possible to find new contractors for these purposes, or whether it is cheaper to do it yourself.

It is also necessary to pay attention to the fact that it may be more profitable and economical to narrow production and transfer some side functions to another manufacturer. Or, on the contrary, enlarge production and carry out some functions independently, refusing to cooperate with related companies.

Other areas of cost reduction may be the organization’s transport, advertising activities, reducing the tax burden, and paying off debts.

Any enterprise must take into account its costs. Work to reduce them will bring more profit and increase the efficiency of the organization.

In the activities of any enterprise, making the right management decisions is based on an analysis of its performance indicators. One of the objectives of such analysis is to reduce production costs, and, consequently, increase business profitability.

Fixed and variable costs and their accounting are an integral part of not only calculating product costs, but also analyzing the success of the enterprise as a whole.

Correct analysis of these items allows you to make effective management decisions that have a significant impact on profits. For analysis purposes in computer programs at enterprises it is convenient to provide for automatic allocation of costs into fixed and variable based on primary documents, in accordance with the principle adopted in the organization. This information is very important for determining the “break-even point” of a business, as well as assessing profitability various types products.

Variable costs

To variable costs These include costs that are constant per unit of production, but their total amount is proportional to the volume of output. These include the costs of raw materials, consumables, energy resources involved in the main production, the salary of the main production staff(together with charges) and the cost of transport services. These costs are directly included in the cost of production. In monetary terms, variable costs change when the price of goods or services changes. Specific variable costs, for example, for raw materials in physical terms, can be reduced with an increase in production volumes due, for example, to a reduction in losses or costs for energy resources and transport.

Variable costs can be direct or indirect. If, for example, an enterprise produces bread, then the costs of flour are direct variable costs, which increase in direct proportion to the volume of bread production. Direct variable costs may decrease with the improvement of the technological process and the introduction of new technologies. However, if a plant processes oil and as a result receives one technological process, for example, gasoline, ethylene and fuel oil, then the cost of oil for the production of ethylene will be variable, but indirect. Indirect variable costs in this case, they are usually taken into account in proportion to the physical volumes of production. So, for example, if when processing 100 tons of oil, 50 tons of gasoline, 20 tons of fuel oil and 20 tons of ethylene are obtained (10 tons are losses or waste), then the cost of producing one ton of ethylene is 1.111 tons of oil (20 tons of ethylene + 2.22 tons of waste /20 t ethylene). This is due to the fact that, when calculated proportionally, 20 tons of ethylene produce 2.22 tons of waste. But sometimes all waste is attributed to one product. Data from technological regulations are used for calculations, and actual results for the previous period are used for analysis.

The division into direct and indirect variable costs is arbitrary and depends on the nature of the business.

Thus, the costs of gasoline for transporting raw materials during oil refining are indirect, but for a transport company they are direct, since they are directly proportional to the volume of transportation. Wages production personnel with accruals are classified as variable costs for piecework wages. However, when time payment labor, these costs are conditionally variable. When calculating the cost of production, planned costs per unit of production are used, and when analyzing actual costs, which may differ from planned costs, both upward and downward. Depreciation of fixed assets of production per unit of production volume is also a variable cost. But this relative value is used only when calculating the cost of various types of products, since depreciation deductions, in themselves, are fixed costs/expenses.

Read also: What are variable and fixed costs of an enterprise?

Thus, total variable expenses can be calculated using the formula:

Rperem = C + ZPP + E + TR + X,

C – costs of raw materials;

ZPP – salary of production personnel with deductions;

E – cost of energy resources;

TR – transport costs;

X – other variable expenses that depend on the company’s activity profile.

If an enterprise produces several types of products in quantities W1 ... Wn and per unit of production variable costs are P1 ... Pn, then the total variable costs will be:

Rvariable = W1P1 + W2P2 + … + WnPn

If an organization provides services and pays agents (for example, sales agents) as a percentage of sales volume, then remuneration to agents is considered a variable cost.

Fixed costs

Fixed production costs of an enterprise are those that do not change in proportion to the volume of production.

The share of fixed costs decreases with increasing production volume (scaling effect).

This effect is not inversely proportional to production volume. For example, an increase in production volume may require an increase in the number of accounting and sales departments. Therefore, they often talk about conditionally fixed costs. Fixed costs also include expenses for management personnel, maintenance of key production personnel (cleaning, security, laundry, etc.), organization of production (communications, advertising, bank expenses, travel expenses etc.), as well as depreciation charges. Fixed expenses are expenses, for example, for renting premises, and the rental price may change due to changes in market conditions. Fixed costs include some taxes. These are, for example, the unified tax on imputed income (UTII) and property tax. The amounts of these taxes may change due to changes in the rates of such taxes. The amount of fixed costs can be calculated using the formula:

Рpost = Zaup + AR + AM + N + OR

2.3.1. Production costs in a market economy.

Production costs – This is the monetary cost of purchasing the factors of production used. Most cost effective method production is considered to be one in which production costs are minimized. Production costs are measured in value terms based on the costs incurred.

Production costs – costs that are directly associated with the production of goods.

Distribution costs – costs associated with the sale of manufactured products.

The economic essence of costs is based on the problem of limited resources and alternative use, i.e. the use of resources in this production excludes the possibility of using it for another purpose.

The task of economists is to choose the most optimal option for using factors of production and minimizing costs.

Internal (implicit) costs – These are monetary incomes that the company donates, independently using its resources, i.e. These are the income that could be received by the company for independently used resources under the best of conditions. possible ways their applications. Opportunity cost is the amount of money required to divert a particular resource from the production of good B and use it to produce good A.

Thus, the costs in cash that the company incurred in favor of suppliers (labor, services, fuel, raw materials) are called external (explicit) costs.

Dividing costs into explicit and implicit are two approaches to understanding the nature of costs.

1. Accounting approach: Production costs should include all real, actual expenses in cash (salaries, rent, alternative costs, raw materials, fuel, depreciation, social contributions).

2. Economic approach: production costs should include not only actual costs in cash, but also unpaid costs; associated with missed opportunities for the most optimal use of these resources.

Short term(SR) is the period of time during which some factors of production are constant and others are variable.

Constant factors are the overall size of buildings, structures, the number of machines and equipment, the number of firms that operate in the industry. Therefore, the possibility of free access of firms to the industry in the short term is limited. Variables – raw materials, number of workers.

Long term(LR) – the period of time during which all factors of production are variable. Those. During this period, you can change the size of buildings, equipment, and the number of companies. During this period, the company can change all production parameters.

Classification of costs

Fixed costs (F.C.) – costs, the value of which in the short term does not change with an increase or decrease in production volume, i.e. they do not depend on the volume of products produced.

Example: building rent, equipment maintenance, administration salary.

C is the amount of costs.

Schedule fixed costs is a straight line parallel to the OX axis.

Average fixed costs (A F C) – fixed costs that fall on a unit of output and are determined by the formula: A.F.C. = F.C./ Q

As Q increases, they decrease. This is called overhead allocation. They serve as an incentive for the company to increase production.

The graph of average fixed costs is a curve that has a decreasing character, because As production volume increases, total revenue increases, then average fixed costs represent an increasingly smaller value per unit of product.

Variable costs (V.C.) – costs, the value of which changes depending on the increase or decrease in production volume, i.e. they depend on the volume of products produced.

Example: costs of raw materials, electricity, auxiliary materials, wages (workers). The main share of costs is associated with the use of capital.

The graph is a curve proportional to the volume of output and increasing in nature. But her character can change. In the initial period, variable costs grow at a higher rate than manufactured products. As the optimal production size (Q 1) is achieved, relative savings in VC occur.

Average variable costs (AVC) – the volume of variable costs that falls on a unit of output. They are determined by the following formula: by dividing VC by the volume of output: AVC = VC/Q. First the curve falls, then it is horizontal and increases sharply.

A graph is a curve that does not start at the origin. General character curve - increasing. The technologically optimal output size is achieved when AVCs become minimal (i.e. Q – 1).

Total costs (TC or C) – the totality of a firm's fixed and variable costs associated with producing products in the short term. They are determined by the formula: TC = FC + VC

Another formula (function of the volume of production output): TC = f (Q).

Depreciation and amortization

Wear- This is the gradual loss of capital resources of their value.

Physical deterioration– loss of the consumer qualities of the means of labor, i.e. technical and production properties.

A decrease in the value of capital goods may not be associated with their loss of consumer qualities; then they speak of obsolescence. It is due to an increase in the efficiency of production of capital goods, i.e. the emergence of similar, but cheaper new means of labor that perform similar functions, but are more advanced.

Obsolescence is a consequence of scientific and technological progress, but for the company this results in increased costs. Obsolescence refers to changes in fixed costs. Physical wear and tear is a variable cost. Capital goods last more than one year. Their cost is transferred to finished products gradually as it wears out - this is called depreciation. Part of the revenue for depreciation is formed in the depreciation fund.

Depreciation deductions:

Reflect an assessment of the amount of depreciation of capital resources, i.e. are one of the cost items;

Serves as a source of reproduction of capital goods.

The state legislates depreciation rates, i.e. the percentage of the value of capital goods by which they are considered to be worn out during the year. It shows how many years the cost of fixed assets must be reimbursed.

Average Total Cost (ATC) – the sum of the total costs per unit of production output:

ATS = TC/Q = (FC + VC)/Q = (FC/Q) + (VC/Q)

The curve is V-shaped. The production volume corresponding to the minimum average total cost is called the point of technological optimism.

Marginal Cost (MC) – an increase in total costs caused by an increase in production by the next unit of output.

Determined by the following formula: MS = ∆TC/ ∆Q.

It can be seen that fixed costs do not affect the value of MS. And MC depends on the increment of VC associated with an increase or decrease in production volume (Q).

Marginal cost shows how much it would cost the firm to increase output per unit. They decisively influence the firm’s choice of production volume, because This is exactly the indicator that the company can influence.

The graph is similar to AVC. The MC curve intersects the ATC curve at the point corresponding to the minimum value of total costs.

In the short run, the company's costs are fixed and variable. This follows from the fact that the company's production capacity remains unchanged and the dynamics of indicators is determined by the increase in equipment utilization.

Based on this graph you can build new schedule. Which allows you to visualize the company’s capabilities, maximize profits and view the boundaries of the company’s existence in general.

For making a firm's decision, the most important characteristic is the average value; average fixed costs fall as production volume increases.

Therefore, the dependence of variable costs on the production growth function is considered.

At stage I, average variable costs decrease and then begin to grow under the influence of economies of scale. During this period, it is necessary to determine the break-even point of production (TB).

TB is the level of physical sales volume over an estimated period of time at which revenue from product sales coincides with production costs.

Point A – TB, at which revenue (TR) = TC

Restrictions that must be observed when calculating TB

1. The volume of production is equal to the volume of sales.

2. Fixed costs are the same for any volume of production.

3. Variable costs change in proportion to the volume of production.

4. The price does not change during the period for which the TB is determined.

5. The price of a unit of production and the cost of a unit of resources remain constant.

Law of Diminishing Marginal Returns is not absolute, but relative in nature and it operates only in the short term, when at least one of the factors of production remains unchanged.

Law: with the growth of someone’s use of a factor of production, with the rest remaining unchanged, sooner or later a point is reached, starting from which additional use variable factors leads to a decrease in production growth.

The operation of this law presupposes the unchanged state of technical and technological production. And therefore, technological progress can change the scope of this law.

The long-run period is characterized by the fact that the firm is able to change all the factors of production used. During this period variable nature of all used production factors allows the company to use the most optimal combinations of them. This will affect the magnitude and dynamics of average costs (costs per unit of production). If a firm decides to increase production volume, but by initial stage(ATS) will first decrease, and then, when more and more new capacities are involved in production, they will begin to increase.

The graph of long-term total costs shows seven different options (1 – 7) for the behavior of ATS in short-term periods, because The long-term period is the sum of the short-term periods.

The long-run cost curve consists of options called stages of growth. In each stage (I – III) the company operates in the short term. The dynamics of the long-run cost curve can be explained using economies of scale. The company changes the parameters of its activities, i.e. the transition from one type of enterprise size to another is called change in scale of production.

I – in this time interval, long-term costs decrease with an increase in the volume of output, i.e. there are economies of scale - a positive effect of scale (from 0 to Q 1).

II – (this is from Q 1 to Q 2), at this time interval of production, the long-term ATS does not react to an increase in production volume, i.e. remains unchanged. And the company will have permanent effect from changes in the scale of production (constant returns to scale).

III – long-term ATC increases with an increase in output and there is damage from an increase in the scale of production or diseconomies of scale(from Q 2 to Q 3).

3. IN general view profit is defined as the difference between total revenue and total costs for a certain period of time:

SP = TR –TS

TR ( total revenue) - the amount of cash received by a company from the sale of a certain amount of goods:

TR = P* Q

AR(average revenue) is the amount of cash receipts per unit of product sold.

Average revenue is equal to the market price:

AR = TR/ Q = PQ/ Q = P

M.R.(marginal revenue) is the increase in revenue that arises from the sale of the next unit of production. Under perfect competition, it is equal to the market price:

M.R. = ∆ TR/∆ Q = ∆(PQ) /∆ Q =∆ P

In connection with the classification of costs into external (explicit) and internal (implicit), different concepts of profit are assumed.

Explicit costs (external) are determined by the amount of expenses of the enterprise to pay for purchased factors of production from outside.

Implicit costs (internal) determined by the cost of resources owned by a given enterprise.

If we subtract external costs from total revenue, we get accounting profit - takes into account external costs, but does not take into account internal ones.

If internal costs are subtracted from accounting profit, we get economic profit.

Unlike accounting profit, economic profit takes into account both external and internal costs.

Normal profit appears when the total revenue of an enterprise or firm is equal to total costs, calculated as alternative costs. The minimum level of profitability is when it is profitable for an entrepreneur to run a business. “0” - zero economic profit.

Economic profit(clean) – its presence means that resources are used more efficiently at a given enterprise.

Accounting profit exceeds the economic value by the amount of implicit costs. Economic profit serves as a criterion for the success of an enterprise.

Its presence or absence is an incentive to attract additional resources or transfer them to other areas of use.

The company's goals are to maximize profit, which is the difference between total revenue and total costs. Since both costs and income are a function of production volume, the main problem for the company becomes determining the optimal (best) production volume. A firm will maximize profit at the level of output at which the difference between total revenue and total cost is greatest, or at the level at which marginal revenue equals marginal cost. If the firm's losses are less than its fixed costs, then the firm should continue to operate (in the short term); if the losses are greater than its fixed costs, then the firm should stop production.

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