Allows you to calculate the minimum price of goods / services, determine the optimal volume of sales and calculate the value of the company's expenses. There are various methods of calculating the types of costs, the main of which are listed below.
Production costs - calculation formulas
The calculation of production costs is easily performed based on the estimate documentation. If such forms are not compiled in the organization, data from the accounting reporting period will be required. It should be borne in mind that all costs are subdivided into fixed (the value is unchanged over the period) and variable (the value changes, depending on the volume of production).
Total production costs - formula:
Aggregate costs = Fixed costs + Variable costs.
This calculation method allows you to find out the total costs for the entire production. Detailing is carried out by departments of the enterprise, workshops, group of goods, types of products, etc. Analysis of indicators in dynamics will help to predict the amount of production or sales, expected profit / loss, the need to increase capacity, the inevitability of reducing the expenditure side.
Average production costs - formula:
Average costs = Total costs / Volume of products manufactured / services performed.
This indicator is also called the total cost of the product / service. Allows you to determine the level of the minimum price, calculate the efficiency of resource investment for each unit of production, compare the required costs with prices.
Marginal production costs - formula:
Marginal Costs = Change in General Costs / Change in Production.
The indicator of the so-called additional costs allows you to determine the increase in costs for the release of additional SOE volume in the most profitable way. In this case, the value fixed costs remains unchanged, variable costs increase.
Note! In accounting, the company's expenses are reflected in the expense accounts - 20, 23, 26, 25, 29, 21, 28. To determine the costs for the required period, you should summarize the debit turnovers for the accounts involved. Internal turnovers and balances at refineries are subject to exclusion.
How to calculate production costs - example
|
GP issue volume, pcs. |
Aggregate costs, rub. |
Average costs, rub. |
Fixed costs, rub. |
Variable costs, rub. |
From the above example, it can be seen that the organization incurs fixed costs in the amount of 1200 rubles. in any case - in the presence or absence of production of goods. Variable costs for 1 piece. initially are 150 rubles, but costs are reduced with an increase in production. This can be seen from the analysis of the second indicator - Average costs, which decreased from 1350 rubles. up to 117 rubles. for 1 unit of finished product. The calculation of marginal costs can be determined by dividing the increase in variable costs by 1 unit of the product or by 5, 50, 100, etc.
The manual is given on the website in an abridged version. In this version, testing is not given, only selected tasks and quality tasks are given, theoretical materials are cut by 30% -50%. I use the full version of the manual in the classroom with my students. The content contained in this manual is subject to copyright. Attempts to copy and use it without specifying links to the author will be prosecuted in accordance with the legislation of the Russian Federation and the policy of search engines (see the provisions on the copyright policy of Yandex and Google).
10.11 Types of costs
When we considered the periods of production of the firm, we said that in the short run the firm can change not all the factors of production used, while in the long run all factors are variable.
It is these differences in the possibility of changing the volume of resources with a change in production volumes that forced economists to break all types of costs into two categories:
- fixed costs;
- variable costs.
Fixed costs(FC, fixed cost) are those costs that cannot be changed in the short term, and therefore they remain the same at small changes the volume of production of goods or services. Fixed costs include, for example, rent for premises, costs associated with equipment maintenance, repayment of previously received loans, as well as all kinds of administrative and other overhead costs. For example, it is impossible to build a new oil refinery within a month. So if next month oil company plans to produce 5% more gasoline, then this is only possible at existing production facilities and with the available equipment. In this case, a 5% increase in output will not lead to an increase in equipment maintenance costs and maintenance of production facilities. These costs will remain constant. Only the amounts of wages paid, as well as the costs of materials and electricity (variable costs) will change.
The fixed cost graph is a horizontal line
Average fixed cost (AFC) is a fixed cost per unit of output.
Variable costs(VC, variable cost) are those costs that can be changed in the short term, and therefore they grow (decrease) with any increase (decrease) in production volumes. This category includes costs of materials, energy, components, wages.
Variable costs show the following dynamics from the volume of production: up to a certain point, they increase at a killing rate, then begin to increase at an increasing rate.
The variable cost graph looks like this:
Average variable cost (AVC) is the variable cost per unit of output.
The Standard Average Variable Cost Graph looks like a parabola.
The sum of fixed costs and variable costs is the total cost (TC, total cost)
TC = VC + FC
Average total cost (AC, average cost) is the total cost per unit of production.
Also, the average total costs are equal to the sum of the average constant and average variables.
Costs. Production cost formulas
AC = AFC + AVC
AC graph looks like a parabola
A special place in economic analysis is occupied by marginal costs. Marginal cost is important because economic decisions usually involve a marginal analysis of the available alternatives.
Marginal cost (MC, marginal cost) is the increment in total costs for the release of an additional unit of production.
Since fixed costs do not affect the increment in total costs, then marginal costs are also an increment in variable costs when an additional unit of output is produced.
As we have already said, formulas with a derivative in economic problems are used when smooth functions are given, from which it is possible to calculate the derivatives. When we are given individual points (discrete case), then we should use formulas with ratios of increments.
The marginal cost graph is also a parabola.
Let's draw a graph of marginal costs together with graphs of average variables and average total costs:
In the above graph, you can see that AC always exceed AVC, since AC = AVC + AFC, but the distance between them decreases as Q increases (since AFC is a monotonically decreasing function).
The chart also shows that the MC chart crosses the AVC and AC charts at the points of their minimums. To substantiate, therefore, this is so, it is enough to recall the already familiar (from the "Products" section) relationship between average and marginal values: when the limiting value is below the average, then the average value decreases with an increase in volume. When the limiting value is higher than the average value, the average value increases with increasing volume. Thus, when the limit crosses the average from bottom to top, the average reaches a minimum.
Now let's try to correlate the graphs of general, average, and limit values:
These graphs show the following patterns:
Accurate calculation of variable costs based on financial statements
Natalia Belorusova,
Leading economist, LLC PVP "Contact"
CFO
No. 10 (98) October 2010
In the course of analyzing their financial statements, the financiers of PVP "Contact" found a way to more accurately calculate the variable costs of a trading company. All it took was an official balance sheet and income statement.
The production and implementation enterprise "Contact" specializes in the supply of medical and dental equipment.
Calculation of production costs
Branches of the enterprise operate in four cities of the Siberian region.
Despite the fact that the company "Contact" was founded almost 20 years ago, in 1992, a full-fledged financial service was created only three years ago. Now this service includes not only the accounting department, but also the planning and economic department. The main reason for the creation of such a financial unit was the increase in the scale of the business and, as a result, the need to monitor its financial condition.
One of the primary tasks of financiers was the calculation and analysis of indicators such as marginal income, break-even point, as well as determining the achievable business growth *. Interestingly, the company did not keep any management accounting. Therefore, I had to use only accounting data. In particular, limit yourself to the balance sheet and the income statement. Due to the lack of information in the company, a number of problems arose related to the calculation of the previously indicated indicators. As it turned out, due to the peculiarities of accounting, it is impossible to clearly distinguish between fixed and variable costs of the company. Now let's talk about everything in order and in detail - how the company solved the listed problems.
The specifics of accounting for the costs of transportation of goods
Since the main activity of PVP "Contact" is wholesale trade, variable costs include the cost of goods and transport and procurement costs, with the correct assessment of which certain difficulties arose. The fact is that these costs could be both attributed to the cost of goods and included in selling costs.
Table 1. Fragment of the profit and loss statement for the month (accounting and management accounting), rub.
Table 2. Deviations of financial indicators when using accounting and management (adjusted) data
In the first case, the delivery of goods is highlighted in a separate line in the consignment note. In accordance with the company's accounting policy, transportation costs are immediately charged to the cost of goods (account 41 "Goods") and automatically become part of the cost of goods (page 021 "Including goods" in the income statement).
However, transportation costs may also be charged by a separate act. For example, if the delivery was provided not by the supplier of the goods, but by some third-party carrier. Such costs are accumulated on account 44 "Sales expenses" and then written off to the expenses of the period in proportion to the volume of goods sold.
Consequently, in the cost of goods reflected in the form No. 2 (profit and loss statement), only part of the transportation costs is taken into account.
Company information
LLC Production and Implementation Enterprise "Contact" was founded in 1992 in Krasnoyarsk. The main activity of the company is wholesale trade in medical equipment, dental equipment, orthopedic products, pharmaceutical and medical products. PVP is one of the largest representatives of Chirana-Dental, Chirana-Medical, EKOM factories, as well as a dealer of Bien-Air, NTI, Medin, etc. The number of employees is 150 people, the turnover is more than 500 million rubles per year. The company has four sales branches. The first is in Abakan (Republic of Khakassia), the second is in Irkutsk (Irkutsk region), the third and fourth are in Achinsk and Lesosibirsk (Krasnoyarsk Territory). The average number of employees in the company is about 150 people.
Technique for determining variable costs
To highlight the amount of variable transport costs, which, due to certain nuances of accounting, fell into the commercial expenses, the production and implementation enterprise "Contact" used the following formula:
Write-off of transportation costs = Balance of transportation costs at the end of the period: Balance of goods at the end of the period x Write-off of goods,
where Remaining transportation costs at the end of the period- this is the debit balance on account 44 "Sales expenses", which in the case of the PVP "Contact" is reflected in the balance sheet (page 213). In some organizations, the balance of account 44 may be reflected in the line "Other stocks and costs" (page 217);
—Balance of goods at the end of the period- this is the line "Finished goods and goods for resale" of the balance sheet (page 214). In the case of trading companies, it usually reflects only goods for resale;
—Write-off of goods for the period reflected in the line "Cost of goods sold" (line 021) in the income statement.
Perhaps it is worth warning right away that it is not possible to accurately separate the costs of transporting goods from the commercial expenses, having only annual or quarterly financial statements in hand. And the "Contact" company had to make sure of this on own experience... The fact is that the error in the calculations turns out to be too significant. This is especially pronounced in situations where during the year specific gravity transportation costs in the cost of goods fluctuate significantly.
Therefore, in such cases, it will be more correct to use the data of the monthly interim financial statements. This is exactly what they did at the Contact PVP.
By the way, with this approach, it will not be difficult to determine the amount of adjustments for the entire year. To do this, it is enough to sum up the previously calculated monthly write-offs of transport costs.
After the write-offs (adjustments) of transportation costs are determined to obtain the correct figures in the income statement, the adjustments are included in the cost of goods sold. And at the same time should be excluded from the commercial expenses. Example
Example
According to the balance sheet, the trading company had a balance of transportation costs at the end of the month of 1,342 rubles, the balance of goods at the end of the period - 106,965 rubles, and the cost of goods sold, which appears in the profit and loss account, was 31,506 rubles.
Accordingly, the amount of the adjustment for transportation costs will be 395 rubles. (1342: 106 965 x 31 506). The income statement before and after the adjustment is presented in table 1 on page 41. Significant changes are visible to the naked eye. The deviation in terms of gross profit reaches almost 6 percent, in terms of marginal profit - more than 9 percent and in terms of financial strength - 8 percent.
What the fixes affected
The discrepancies in financial indicators of accounting and management accounting (before and after adjustments) reached 9 percent. And this despite the fact that often even less significant deviations can give more serious errors in the calculation of indicators that are significant for the management of the company.
In conclusion, it should be said that the methodology for determining variable costs and calculating basic financial indicators used in PVP "Contact" may well be adopted in other trading companies... Provided that their variable costs include mainly the cost of the goods and the cost of transportation. This will allow management to operate with more accurate data in their work.
Marginal Cost Formula
The concept of marginal cost
The marginal cost formula is calculated by the ratio of the increase in total costs to the increase in the quantity of goods.
How to calculate costs?
Also, the formula for marginal costs 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 the maximum profit, bears the costs of acquiring production factors, while striving to achieve the level of production of a given volume of products with the lowest costs.
The enterprise cannot influence the price of resources, but knowing the dependence of the volume of production on the number of variable costs, costs are calculated.
In accordance with the organization, expenses are classified into groups:
- Individual expenses for a specific company,
- Public expenses - the cost of producing a certain type of product, which is borne by the entire economy,
- Opportunity costs,
- Production costs, etc.
Also, costs are classified into 2 groups:
- Fixed costs include investments to ensure stable production. This type of cost is constant and does not depend on the production volume;
- Variable costs include costs that are subject to easy adjustment, without causing damage to the activities of the enterprise (change in accordance with the volume of production).
Marginal Cost Formula
Marginal cost is the change in the total cost of the enterprise in the process of producing each additional unit of goods.
The marginal cost formula is as follows:
MS = TC / Q
Here TS is an increase (change) in total costs;
Q - increase (change) in the volume of goods output.
To calculate the increase in total costs, the following formula is used:
TC = TC2 - TC1
To calculate the change in output, the following equation is used:
Q = Q2 - Q1
Substituting these equalities in the marginal cost formula, we get the following formula:
MS = (TC2 - TC1) / (Q2 - Q1)
Here Q1, T1 are the initial amount of the issue and the corresponding amount of costs,
Q2 and ТС2 - the new output quantity and the corresponding cost.
Value of marginal cost
The calculation of the value of marginal costs makes it possible to determine the degree of benefit from the production of each additional unit of goods.
Marginal cost is an important economic tool that determines the strategy of production development. The level of marginal costs makes it possible to show the volume of production at which the enterprise needs to stop to obtain the maximum amount of profit.
In the event of an increase in production and sales, the costs of the enterprise change as follows:
- Uniform variation suggests that marginal costs are constant, equal to variable costs per unit of output;
- Accelerated change reflects an increase in marginal cost with increasing output;
- Slowed-down change shows a decrease in the marginal costs of a firm if its costs of purchased raw materials decrease with an increase in output.
Examples of problem solving
Analysis of indicators of tax costs and tax burden
The problem of optimizing the tax burden for our economy is one of the most urgent. If the tax system does not stimulate the development of business and, especially in the production sector, then the expected economic recovery will not happen. In this regard, it should be noted that the changes made to the domestic tax system by the new Tax Code are positive. However, it will be possible to evaluate concrete results after several years. The assessment of the current tax burden on an enterprise is given on the example of one of manufacturing enterprises Orenburg region.
Table 1- Calculation of the structure of tax costs
| Indicators | Base year | Reporting year | ||
| Amount (million rubles) | Ud. weight % | Amount (million rubles) | Ud. weight % | |
| Taxes refundable through the price of products (indirect taxes) - total: incl. VAT, etc. | 41,1 34,9 | 40,2 35,6 | ||
| Taxes reimbursed through cost, total: including: - Land tax - Tax on road users - Unified social tax, etc. | 5,5 6,5 4,2 | 32,9 3,4 4,4 2,9 | 5,5 8,0 4,4 | 33,9 3,2 4,6 2,5 |
| Tax attributable to financial results- total: including: - Property tax, etc. | 4,1 4,1 | 4,1 3,4 | ||
| Tax refundable from net profit- total: including: - Income tax - Payments for excess emissions of pollutants in environment etc. | 21,9 17,1 4,8 | 21,8 17,2 4,6 | ||
| Total tax costs |
The calculations in table 11.1 showed that most of the taxes, more than 40%, are indirect. The latter mainly include VAT. The second place in the composition of tax costs is occupied by taxes attributable to production costs, accounting for about 33%. The share of taxes attributable to the net profit of the enterprise is also significant - more than 20%.
The role of different groups of tax costs depends on the specifics of production, industry and other factors, but the general picture of their structure is typical for most of them, which is confirmed by the results of our study.
Outstripping growth in sales revenue, profits and financial resources(balance sheet currency) in comparison with the growth of tax costs contributed to a decrease in the tax burden on gross profit, financial resources and sales, both in terms of generalizing and specific indicators (Table 11.2).
Table 11.2 - Data for calculating the tax burden on the company
However, the increase in the mass of tax costs significantly weakened the positive trends, and in terms of net profit and the number of employees showed an increase in the tax pressure (Table 11. 3).
The insufficient size of the company's net profit is the reason that more than 80% of its amount goes to tax payments. The increase in sales volumes contributed to the fact that the tax burden on income decreased, however, it exceeds 50% of the amount of income and proceeds from sales, which reduces the interest of entrepreneurs in business development.
Table 11.3 - Calculation of the tax burden on the company
| Indicators | Base year | Reporting year | Adjusted indicator | Deviation | ||
| general | incl. at the expense of | |||||
| the amount of taxes (tax costs) | sources of tax refund or enterprise resources | |||||
| Indicators of the total tax burden on the enterprise in% in relation to the indicators: a) income b) sales c) financial resources d) profit before tax e) per 1 employee f) net profit | +1 -2 -8 -25 +8 +22 | +8 +8 +10 +35 +10 +63 | -7 -10 -18 -60 -2 | |||
| Partial indicators of the tax burden by sources of covering tax costs (%): a) sales b) cost c) profit before tax d) net profit | -2 +1 -1 +4 | +2 +5 +1 +13 | -4 -4 -2 -9 |
Consequently, constant research is needed to assess the tax burden based on reported data, since changes in tax legislation significantly change the tax burden on the company.
Amendments to tax legislation in 2002 were aimed at reducing the tax rate on income tax to 24% from 35% in 2001. However, as shown by calculations in Table 11.3, this did not significantly reduce the overall indicators of the tax burden. Thus, in relation to income, the load increased by 1%, and to net profit by 22%. These changes are due to the fact that the growth rate of tax costs outstripped the growth rate of income and net profit. The high increase in tax costs, including income tax, is due to the rigidity of the tax system in terms of penalties and fines for violating tax legislation, as well as an increase in the number of costs not taken into account when forming the taxable base for income tax. In this regard, the profit of an enterprise formed in accordance with the Accounting Regulations is significantly lower than the profit generated for tax purposes in accordance with the requirements of Chapter 25 of the Tax Code “Corporate Profit Tax”.
A decrease in the tax burden on the studied enterprise took place in terms of the indicators of the load on the balance sheet currency, the total amount of the enterprise's financial resources, sales proceeds, and profit before tax. main reason This decrease consists in the fact that the growth rates of tax costs lagged behind the growth rates of the listed indicators. Consequently, expanding the scope of activities and increasing investment in business potentially reduce the tax burden. Its factor analysis confirms the importance of these conclusions: due to the growth of income, the tax burden decreased by 7 points, revenue - by 10, financial resources - by 18, and profit before tax - by 60.
Partial indicators of the tax burden have had ambiguous changes. The increase in taxes attributed to the cost price is due to an increase in taxable bases: revenue, wages and others. A significant decrease in net profit as a result of the payment of penalties to the budget for violation of tax legislation led to the fact that the withdrawal of net income increased from 80 to 84%. Thus, in practice, a decrease in tax rates does not always lead to a decrease in the tax burden.
Problem number 71. Calculation of costs
The study of the reasons for the growth of violations of tax legislation at individual enterprises showed that they can be caused by frequent changes, inconsistency with other regulations, insufficient competence of the company's accounting staff. This requires increased control on the part of the management apparatus over the timeliness of settlements with the budget, as well as the involvement of auditors in order to correct errors in accounting in a timely manner.
Along with this, at the level of legislators, a simplification of the tax system is required. Practice has shown that the new tax code has not yet solved this problem. On the contrary, experts note the significant complication of tax legislation and the strengthening of its fiscal function.
10. Concept and classification of costs.
Production costs - purchase costs economic resources consumed in the process of releasing certain goods.
Any production of goods and services, as you know, is associated with the use of labor, capital and natural resources, which are factors of production, the cost of which is determined by the cost of production.
Due to limited resources, the problem arises of the best use of all the rejected alternatives.
Opportunity cost is the cost of producing goods, determined by the value of the best missed opportunity to use production resources, providing the maximum profit. The opportunity cost of an enterprise is called economic cost. These costs must be distinguished from accounting costs.
Accounting costs differ from economic costs in that they do not include the cost of factors of production that are owned by the owners of firms. Accounting costs are less than economic costs by the value of the implicit earnings of the entrepreneur, his wife, implicit land rent and the implicit interest on the owner's equity capital. In other words, accounting costs are equal to economic costs minus all implicit costs.
Variants of the classification of production costs are diverse. Let's start by distinguishing between explicit and implicit costs.
Explicit costs are opportunity cost, taking the form of cash payments to the owners of production resources and semi-finished products. They are determined by the sum of the costs of the firm to pay for the purchased resources (raw materials, materials, fuel, labor, etc.).
Implicit (implicit) costs are the opportunity costs of using resources owned by the firm and take the form of lost income from the use of resources owned by the firm. They are determined by the value of the resources owned by the given firm.
The classification of production costs can be carried out taking into account the mobility of production factors. Fixed, variable and general costs are highlighted.
Fixed costs (FC) - costs, the value of which in a short period does not change depending on the change in the volume of production. They are sometimes referred to as "overhead" or "deadweight". Fixed costs include the cost of maintaining production buildings, purchasing equipment, rent payments, interest payments on debts, salaries of management personnel, etc. All these costs must be financed even when the firm does not produce anything.
Variable costs (VC) - costs, the value of which changes depending on the change in the volume of production. If products are not produced, then they are equal to zero. Variable costs include the cost of purchasing raw materials, fuel, energy, transport services, wages of workers and employees, etc. In supermarkets, payment for the services of controllers is included in variable costs, since managers can adjust the volume of these services to the number of buyers.
Total costs (TS) - the total costs of the firm, equal to the sum of its fixed and variable costs, are determined by the formula:
Overall costs increase as production increases.
Costs per unit of goods produced are in the form of average fixed costs, average variable costs, and average total costs.
Average fixed cost (AFC) is the total fixed cost per unit of output. They are determined by dividing fixed costs (FC) by the corresponding quantity (volume) of products produced:
Since the total fixed costs do not change, then when divided by the increasing volume of production, the average fixed costs will fall as the amount of output increases, because a fixed amount of costs is distributed over more and more units of output. Conversely, with a decrease in production, average fixed costs will rise.
Average Variable Cost (AVC) is the total variable cost per unit of output. They are determined by dividing variable costs by the corresponding amount of output:
Average variable costs first fall, reaching their minimum, then begin to rise.
Average (total) costs (ATS) are the total production costs per unit of output. They are defined in two ways:
a) by dividing the sum of total costs by the amount of products produced:
b) by summing the average fixed costs and average variable costs:
ATC = AFC + AVC.
Initially, the average (total) costs are high, since a small volume of production is produced and the fixed costs are high. As the volume of production increases, average (total) costs decrease and reach a minimum, and then begin to rise.
Marginal cost (MC) is the cost associated with the release of an additional unit of output.
Marginal costs are equal to the change in total costs divided by the change in the volume of products produced, that is, they reflect the change in costs depending on the quantity of products produced. Since the fixed cost does not change, the constant marginal cost is always zero, that is, MFC = 0.
How to calculate variable costs (examples, formula)
Therefore, the marginal cost is always the marginal variable cost, that is, MVC = MC. It follows that increasing returns on variable factors reduce marginal costs, while falling returns, on the contrary, increase them.
Marginal costs show what is the amount of costs that the firm will incur in the growth of production for the last unit of output, or those funds that it will save in the event of a decrease in production for this unit. When the incremental cost of producing each additional unit of output is less than the average cost of the units already produced, producing that next unit will lower the average total cost. If the cost of the next additional unit is higher than the average cost, its production will increase the average total cost. The above applies to a short period.
In the practice of Russian enterprises and in statistics, the concept of "prime cost" is used, which is understood as the monetary expression of the current costs of production and sales of products. The structure of costs included in the prime cost includes the cost of materials, overheads, wages, depreciation, etc. There are the following types of prime cost: base - the prime cost of the previous period; individual - the amount of costs for the manufacture of a specific type of product; transportation - the cost of transportation of goods (products); sold products, current - assessment of sold products at the restored cost; technological - the amount of expenses for the organization technological process manufacturing of products and rendering of services; actual - based on the data of actual costs for all cost items for a given period.
G.C. Bechkanov, G.P. Bechkanova
More related materials Production costs
Microeconomics…
Let's talk about the fixed costs of the enterprise: what is the economic meaning of this indicator, how to use and analyze it.
Fixed costs. Definition
Fixed costs(English Fixed cost, FC, TFC or total fixed cost) is a class of enterprise costs that are not related (do not depend) on the volume of production and sales.
At every moment of time, they are constant, regardless of the nature of the activity.
Fixed costs, together with variables that are the opposite of fixed costs, make up the total costs of the enterprise.
Fixed Cost / Cost Formula
Possible fixed costs are shown in the table below. In order to better understand fixed costs, let's compare them with each other.
Fixed costs = Salary costs + Premises rental + Depreciation + Property taxes + Advertising;
Variable costs = Costs of raw materials + Materials + Electricity + Fuel + Bonus part of the salary;
Total costs = Fixed costs + Variable costs.
It should be noted that fixed costs are not always constant, because an enterprise, while developing its capacities, can increase production areas, the number of personnel, etc.
As a result, fixed costs will also change, which is why management accounting theorists call them (conditionally fixed costs).
Similarly, for variable costs - conditionally variable costs.
An example of calculating fixed costs in an enterprise inExcel
Let's show clearly the difference between fixed and variable costs. To do this, in Excel, fill in the columns with "production", "fixed costs", "variable costs" and "total costs".
Below is a graph comparing these costs with each other. As we can see, with an increase in the volume of production, the constants do not change over time, but the variables grow.
Fixed costs do not change only in the short run. In the long term, any costs become variable, often due to the influence of external economic factors.
Two methods of calculating costs in the enterprise
When manufacturing products, all costs can be divided into two groups according to two methods:
- fixed and variable costs;
- indirect and direct costs.
It should be remembered that the costs of the enterprise are the same, only their analysis can take place according to various methods. In practice, fixed costs overlap strongly with concepts such as indirect costs or overheads. As a rule, the first method of cost analysis is used in management accounting, and the second in accounting.
Fixed costs and enterprise break-even point
Variable costs are part of the break-even point model.
As we determined earlier, fixed costs do not depend on the volume of production / sales and with an increase in the volume of output, the enterprise will reach a state where the profit from the products sold will cover the variable and fixed costs.
This state is called the break-even point or the critical point when the company goes into self-sufficiency. This point is calculated in order to predict and analyze the following indicators:
- at what critical volume of production and sales the enterprise will be competitive and profitable;
- what volume of sales must be done in order to create an area of financial security of the enterprise;
The marginal profit (income) at the break-even point coincides with the fixed costs of the enterprise. Domestic economists more often use the term gross income instead of marginal profit.
The more the profit margin covers fixed costs, the higher the profitability of the enterprise. You can study the break-even point in more detail in the article “Break-even point.
Graphs and an example of calculating a model in Excel. Advantages and disadvantages".
Fixed costs in the company's balance sheet
Since the concepts of fixed and variable costs of the enterprise refer to management accounting, then there are no lines in the balance sheet with such names. In accounting (and tax accounting), the concepts of indirect and direct costs are used.
In general, balance lines can be attributed to fixed costs:
- Cost of goods sold - 2120;
- Selling expenses - 2210;
- Management (general business) - 2220.
The figure below shows the balance sheet of OJSC “Surgutneftekhim”, as we can see, fixed costs change every year. The fixed cost model is a purely economic model, and it can be used in the short term, when revenues and production volumes change linearly and regularly.
Let's take another example - OJSC ALROSA and look at the dynamics of changes in conditionally fixed costs. The figure below shows the pattern of cost change from 2001 to 2010. You can see that the costs have not been constant over the past 10 years. The most sustainable costs throughout the period were selling expenses. The rest of the costs changed in one way or another.
Summary
Fixed costs are costs that do not change with the volume of production of the enterprise.
This type of costs is used in management accounting to calculate total costs and determine the break-even level of an enterprise.
Since the company operates in a constantly changing external environment, then fixed costs in the long run also change and therefore in practice they are often called conditionally fixed costs.
Ph.D. Zhdanov Ivan Yurievich
Cost price: calculation formula, types and types of cost price, examples of calculations
One of the most popular concepts in commerce, economic science and entrepreneurship is - the formula for the cost of creating and selling products. The indicator is explained as the total number of funds spent by the company for the production and subsequent sale of a service or product, in strict dependence on the sector of the economy in which the company operates.
Calculation: Existing Waste Cost Types and Types
Today, the cost is divided into marginal and average (in other words, the total cost).
Full cost, means the volume of all production waste of the enterprise, including commercial, aimed exclusively at the production process.
The marginal cost indicator is the unit cost of the product created.
Key types of costs:
- Shop... It implies the total volume of all costs of the firm, incurred by all of its production structures that have a direct impact on the creation of the product.
- Production... It takes into account the company's expenses incurred by all involved structures of the company, as well as general and targeted spending.
- Full cost implies that in addition to the costs of the enterprise for organizing the entire production process of the release of a product or service, money intended for the final sale of the released product is entered in the line of waste. In other words, to the production cost of waste are added the costs necessary to build logistics, deliver goods to the end consumer.
In addition to the above types, such concepts as the average industry, individual, actual, as well as full cost are often used.
Structure
The architecture of the cost of waste of the company is built on the basis of the following structural indicators:
- Wage. Depending on the deductible cost, wages can be taken into account for auxiliary personnel, the main class of workers, junior maintenance and intellectual personnel.
- Deductions for the depreciation of the main assets of the enterprise (renovation of buildings, improvement of the adjacent territory).
- Waste on the organization and conduct of social events.
- Material expenses of the company. The following types are credited: the purchase of raw materials, electricity, general production costs, the purchase of components and production equipment.
- Waste on the development and implementation of a marketing strategy.
The following balance sheet items are taken into account in the calculation process:
- Electricity and fuel used in the process of creating the manufactured product.
- The approved salary of the main personnel of the company.
- Key materials used in the production of a product (for example, components, semi-finished products, units).
- General production costs aimed at delivering the product to consumers (sale), payment of employees involved in the repair of production facilities and fixed assets of the company (premises), intra-production waste.
- Depreciation deductions in favor of the main production fund.
- Social expenses of the company.
Also taken into account are the costs of paying for the services of contractors, travel allowances and administrative expenses for the maintenance of the management apparatus. The calculation of the cost of spending on the creation of a product may be different depending on which sector of the economy the company operates in.
Available methods for calculating the cost of waste
The formula for calculating the cost of production costs in the overwhelming majority of cases is generated on the basis of the full amount of recorded costs.
Several calculation methods are available, such as: by-pass, order-by-order, by-process, normative.
Each of the presented calculation methods is based on the classic variation of identifying the full cost of waste.
For ease of understanding, you can use a hypothetical company "Quantum", which produces high-tech products.
To obtain an indicator of the total cost of manufactured products, it is worth summing up the values of all shop, commercial and general industrial waste.
The following balance sheet lines are included in the workshop cost of waste:
- and the practical use of the equipment.
- Waste on electricity and process fuel used in the production process.
- Payments for social obligations, as well as salaries for basic workers.
- The whole range of workshop expenses (depreciation of fixed assets, inventory maintenance, employee deductions).
Under the general production waste of the company, it means the salary of the executive staff, waste on business trips, security guards, as well as the salary of the management department.
General production costs include depreciation deductions for the maintenance of buildings, maintenance of equipment and structures for general plant purposes, labor protection, training of new specialists, as well as other general economic waste.
Therefore, the calculation takes place in the following sequence:
- The costs of a variable nature are identified, for the creation of one unit of the product, taking into account waste.
- Allocation in general plant waste of those types of expenses that are directly related to the type of product being produced.
- All associated costs are summed up, which do not in any way relate to waste of the production process.
- The resulting value participates in the full cost and price generation is already completely finished products sent to the end consumer.
In the case of an increase in the value of the total cost of production, there is an increase in the price of its sale, which has a negative impact on the competitiveness of the product in the market and, as a consequence, the position of the company in the industry.
Formulas
The method of calculating the cost of creating a product directly depends on the degree of readiness of the product itself. The calculation formula looks like this:
- Production costs: C = M3 + A + Tr + other costs:
- Where, A - depreciation charges;
- С - the cost of expenses;
- МЗ - material expenses of the company;
- Tr - waste on wages to employees of the company.
- The total cost of production is the calculation formula: C = waste on creating a product + waste of a non-production nature.
- Cost of a sold product (cost of sales) - calculation formula: C = total cost + selling costs - balances of an unsold product.
- Production cost: C = gross product price - changes in WIP balances.
- The cost of gross output: C = production costs - non-production waste - future time costs.
Calculation of the cost of manufactured products has a huge impact on the formation of the future development strategy of the company, its position in the industry and the degree of consumer confidence.
Calculation example
Let's consider an example of calculating the cost price using the formula.
As an example, we use the structure of the cost price by expense items of the balance sheet per thousand products:
- Waste sorting and logistics of the final product - five percent of the production cost.
- General economic waste - twenty percent of the wages of production workers.
- Waste on the wage line - forty percent to pay for basic production workers;
- Waste expenses of a general production nature - ten percent.
- Purchase of electricity and fuel for technological purposes - 1.5 thousand rubles.
- Purchase of materials, as well as raw materials used in the production process - three thousand rubles;
- The wages of the main workers are two thousand rubles.
The challenge lies in the need to determine the level of manufacturer's cost per unit of production, as well as the volume of income from its sale, in the case of an acceptable level of profitability within 15 percent.
Calculations are made in absolute terms of indirect waste of the company, given in percentage definitions of remuneration for basic employees per one thousand of the created product:
- Payroll line expenses = RUB 2,000 x 40 percent / 100 percent = RUB 800.
- General waste expenses = 2,000 rubles x 20 percent / 100 percent = 400 rubles.
- General production costs of the company = 2000 rubles x 10 percent / 100 percent = 200 rubles.
The determination of the production cost of the company's waste is based on all costs: 1000 = 400 + 3000 + 800 + 200 + 2000 + 1500 = 7.9 thousand rubles
- The company's expenses on packaging and logistics = 7,900 x 5 percent / 100 percent = 395 rubles.
- The total cost of the created product (one thousand products) = 7,900 + 395 = 8,295 rubles.
- The total cost is 8.3 rubles on average.
- The cost of one product = 8.3 rubles + 8.3 rubles x 15 percent / 100 percent = 9.5 rubles.
In addition to the above factors, which have a huge impact on the process of generating the value of manufactured products, tax deductions can play a significant role.
The overwhelming number of companies engaged in the production of various products always take into account tax deductions in the process of forming a single price. The only exception may be the presence of any tax privileges or tax holidays for a certain time interval.
Conclusion
The cost of waste is one of the most accurate and effective instruments analysis of the entire production cycle of the company, regardless of whether products are created or a certain set of services is provided.
One of the distinguishing features of the cost formula is its temporary versatility.
The calculation can be made in any convenient time frame, which gives ample opportunity to determine the profitability of the following development strategy, taking into account the seasonal factor.
A well-conducted calculation of the cost of production of goods and services can have a significant and positive impact on the entire further process of the company's development, because it is the price of the goods that plays a key role in the level of consumer confidence, the competitiveness of the company, as well as the profit received at the end of each reporting period.
on the topic of
Fixed costs: what they include, calculation formula - Plan-Pro
The activities of any organization (not only a commercial one) are not complete without a constant need for investment and implementation of costs.
But for an enterprise with the goal of making a profit, it is especially important to conduct a deep analysis of all types of costs and strive to optimize them.
Therefore, in this article we will analyze such a type of enterprise expenses as fixed costs: we will give a definition of this phenomenon, explain the distinctive features and, most importantly, we will try to understand why the analysis of fixed costs is important for the successful operation of an enterprise.
What are fixed costs of an enterprise
Fixed costs- this is part of the total costs of the enterprise associated with production activities and the maintenance of related processes. Fixed costs got their name due to the fact that their value in the structure of all production costs remains unchanged regardless of how many goods were manufactured or how many services were provided.
List of directions fixed costs includes expenses that can be called mandatory, because without them it will be impossible to create any production, without them investing in variable costs (for example, the purchase of raw materials and materials) becomes simply meaningless.
We also note that the calculation of the costs of the enterprise can be carried out by various methods. And in some calculation methods, you may not come across the concept “ fixed costs”. Then their analogs are likely to be such cost items as “indirect” (in the classification of indirect / direct) or overhead costs.
Why should a firm analyze fixed costs
Categories such as "price", "cost", "profit per unit of production" (as the difference between price and cost) are directly related to the analysis of various types of costs of the enterprise. A particularly important place in this analysis is occupied by fixed costs.
Despite the fact that these costs are constant, in the case when we are talking about the total value of production costs. But their influence on the structure of the unit cost is just the same very variable.
So, with an increase in production, the value fixed costs in the unit of cost becomes less. This relationship has received a stable definition of "economies of scale of production" (economies of scale).
For example, the quantity fixed costs at the enterprise for a given period of time is fixed and amounts to 150 thousand rubles. Then, in the production of 1000 products, the value fixed costs in the cost of each product will be 150 rubles.
Suppose the market demand for manufactured products has grown and production capacity allows the production of 1,500 finished products. Then the share of fixed costs in the cost of each product will already be equal to 100 rubles.
As a result, you can set a lower price (which will cause even more demand) without losing profit per unit of production.
Thus, the "stretching" of fixed costs for an increasing volume of goods and services is one of the main ways to reduce the cost and price of products. But build up volumes without changing fixed costs It is also impossible, because then the quality of the goods produced will suffer and this problem can become especially acute in the provision of services.
In order to correctly determine this fine line and the optimal values fixed costs and the volume of production, you need to plan costs and do it better within the framework of a single business plan for the project.
What production costs are attributed to fixed costs
Usually in composition fixed costs includes the following types of costs:
Wages in the "transaction" sector;
Fixed part of the wages of production workers (salary);
Part of payments for public Utilities;
Security costs;
The costs of carrying out various developments.
Examples of fixed costs
Salaries of non-production personnel. This includes divisions of the organization such as accounting, legal department, a group of those. support, security guards and other categories of personnel not directly involved in the production of goods and services, but ensuring the maintenance of all business processes of the enterprise.
Payment of utility services. Part of utility bills will depend on the volume of production, for example, associated with the use of water for industrial purposes.
But for any enterprise there is a certain minimum of consumed electricity, water supply, etc., which are necessary even if the company will not produce anything.
First of all, this includes lighting of premises, water supply, not intended for the manufacture of products, heating, etc.
The security system of the organization includes cost items related to the operation of video surveillance, alarm systems, etc.
Development costs involve a wide range of work. This includes scientific and technical developments aimed at improving production processes, and the development advertising campaign and promotion strategies, and much more.
The list of fixed costs is not limited to this list. Everything will depend on the specifics of each specific enterprise. For example, in many cases it will also be possible to include the write-off of costs associated with the depreciation of equipment.
Formula to find fixed costs (what needs to be done)
Fixed costs= Payment of wages + Payments for rent + Depreciation deductions + Tax payments + Advertising costs + The amount of additional costs depending on the specifics of the enterprise.
Let us add that it is sometimes difficult to single out the items of fixed costs "in their pure form." Therefore, when classifying costs in an enterprise, the concept of conditionally fixed costs is used. These can be called costs that will be classified as constant only up to certain limits.
For example, payment for lighting will refer to fixed costs, if we are talking about a small business, where no matter how many machines are illuminated by one light bulb, it is necessary in any case.
But for example, if this light bulb will function over each machine and their number will depend on the volume of output, then in this case we will talk about variable costs.
Cost analysis as part of the business plan
Cost analysis - capital (investment), constant and variable - is the most important component of the business planning process. After all, for example, the "survival" of the project depends on whether we will be able to cover the sum of the resulting costs.
Determination of the optimal production volume depending on the acceptable size permanent and variables costs combines such an indicator of investment analysis as the "break-even point". And the value of another important parameter - the marginal profit (income) - at the break-even point coincides with the constant costs of the enterprise.
The required amount of income, profit per unit, based on this, the price and payback period, and other parameters - all this depends on the correct planning and distribution of costs. Therefore, it is equally important to correctly integrate the consumable part into the total financial model business plan.
To correctly find fixed costs, you need
Let's list some of the mistakes that entrepreneurs make when determining the cost structure. To correctly find the amount of fixed costs, it is better to avoid the following mistakes:
1) understatement fixed costs and
2) overestimated variables
3) incomplete accounting of all directions fixed costs
Wrong allocation of costs for fixed and variable costs can lead to a number of errors in economic analysis. First of all, these are errors related to the cost structure.
For example, as already noted, fixed costs are one of the main sources of savings and cost savings.
If most of the costs are incorrectly attributed to fixed, then this source of cost savings can "disappear".
conclusions
Concluding the article, we summarize the above. I think it became clear that the determination of the value of the constants pa
retirements is an extremely important and responsible business. The success and effectiveness of the subsequent economic analysis depends on the competent planning of the expenditure part of the project.
In order to correctly draw up a business plan for your project, we advise you to contact specialists in this field for the development of this document. You can also do it yourself, which will be more difficult.
2.2 Calculation of the current costs of the enterprise
After determining the production program of the enterprise, it is necessary to assess its current costs associated with the production and sale of products.
The costs of basic and auxiliary materials for production are calculated based on the consumption rates per unit of production and the price of a unit of materials:
Рм i = Qi М (о, в) i Цм i,
where М (о, в) i - the rate of consumption of basic or auxiliary materials for the production of a unit of product of the i-th type, kg;
CM i - price of 1 kg of materials, rubles.
In a similar way, other costs for main production, costs for maintenance and production management are calculated: wages (main and additional) of production workers; deductions for social needs; electricity for technological purposes; equipment maintenance and operation costs; general production selling expenses.
Table 4
Calculation of costs for basic and auxiliary materials for production
Consumption rate per unit, kg | Product release per month, units | Production output per year, units | Price for 1 kg of materials, p. | Consumption of materials, kg | Material costs, p. |
|||
Consumption of basic materials |
||||||||
Consumption of auxiliary materials |
||||||||
Fixed costs include amortization of equipment and intangible assets, costs of renting premises, marketing research and advertising, administrative and other costs.
The total amount of fixed costs is determined by the formula:
Pp = AP + ANMA + AOPF + Ppost,
where AP is the rent for the premises per year, p .;
ANMA - the amount of amortization of intangible assets, p .;
AOPF - the amount of depreciation of fixed assets, p .;
Ppost - other fixed costs of the enterprise, p.
The amount of amortization of intangible assets is determined by the formula:
ANMA = CHMA / Tsl,
where SNMA is the value of the intangible assets of the enterprise, p .; in this case, the cost of the license is referred to intangible assets;
Tsl is the term of use of the license, years.
ANMA = 14/3 = 4.7 thousand rubles.
The amount of depreciation deductions is determined for each group of fixed assets of the enterprise, based on their cost and depreciation rate.
AOPf # 1 = 110 * 10% = 11 thousand rubles.
AOPf # 2 = 90 * 12% = 10.8 thousand rubles.
AOPf # 3 = 65 * 8% = 5.2 thousand rubles.
Total Amount of Depreciation of Fixed Production Assets:
AOPF = 7 + 9.6 + 11.2 = 27.8 thousand rubles.
Thus, the total fixed costs are:
Rp = 16 + 4.7 + 27 + 19 = 66.7 thousand rubles.
Using the initial data and calculation results, it is necessary to determine the total cost of production. The calculation is carried out in the form of table. 5.
Table 5
Calculation of the total cost of production and sales of products
Costs, thousand rubles |
||||
Name | By model | |||
1. Raw materials and basic materials | ||||
2. Supporting materials | ||||
3. Electricity for technological purposes | ||||
4. Wages of production workers | ||||
5. Social contributions | ||||
6. Other variable costs | ||||
7. Total variable costs | ||||
8. Expenses for payment of rent of premises | ||||
9. Depreciation of intangible assets and fixed assets | ||||
10. Other fixed costs | ||||
11. Total fixed costs | ||||
12. Total gross cost | ||||
13. Share in the cost structure,% variable costs fixed costs |
fWhen filling out the table, the value of fixed costs is distributed by type of product in proportion to the cost of wages of production workers.
To do this, it is necessary to calculate the specific weight of wages for each model in the total wage fund of production workers, and then use the calculated values to distribute the total amount of fixed costs across the models.
2.3 Determining the selling price of products
An important issue when planning a business is the determination of the selling price of products.
Usually the initial base for determining the price is the value of the cost of production and the size of the desired profit (average rate of return). If other factors (demand, competition) are not taken into account when calculating the price, then the following formula is used:
production program cost-effectiveness price
Цi = сi (1 + R / 100),
where ci is the unit cost of the i-type product, rubles.
Unit cost of product type A:
CA = 657.537 / 1320 = 0.498 thousand. rub. = 498.1 rubles.
Unit cost of production of type B:
SB 1410.232 / 1200 = 1.175 thousand rubles. = RUB 1175
Unit cost of type B:
SV = 694.047 / 840 = 0.826 thousand rubles. = RUB 826
The average rate of return for all types of products is 25%, then, the unit price of type A products will be:
CA = 498.1 * (1 + 25/100) = 622.6 rubles.
Central bank = 515 * (1 + 25/100) = 1469 rubles.
CV == 430 * (1 + 25/100) = 1032.8 rubles.
The above method for determining the price of products is included in the group of cost methods.
The second group of methods implies focus on market factors, such as dynamics and elasticity of demand, changes in consumer income, etc.
Therefore, when determining the price by the second method, we introduce correction coefficients that take into account the elasticity of demand in terms of price (Kets) and incomes of consumers (Kad), changes in consumer incomes (Id), the market share of the enterprise in relation to the total volume of commodity mass in the market (?), Changes in the commodity mass supplied by competitors to the market (?).
In this case, the price is determined by the formula:
where Кп is a correction factor that takes into account market factors
For type A products:
For type B products:
For type B products:
Thus, taking into account the correction factor that takes into account market factors, the price for type A products will be:
CAp = 622.6 * 1.2397 = 772 rubles.
Central Bank = 1469 * 1.6297 = 2394 rubles.
CVR = 1032.8 * 1.3426 = 1384 rubles.
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The variety of ways to make a profit for enterprises in any industry of production and sale of services, on the one hand, creates unlimited opportunities for the development of a particular business, on the other hand, each type of activity has a certain threshold of efficiency, determined by break-even.
In turn, the amount of revenue that guarantees a profit is directly dependent on the total costs of production and sales of products.
What it is?
The total expenses of the enterprise for the purposes of analyzing the break-even activity are usually divided into two main categories:
- - costs, the amount of which directly depends on the volume of production and sale of the service (depending on the chosen direction of the company's functioning), that is, in fact, they are directly proportional to any fluctuations in the volume of the main activity carried out;
- fixed - these are costs, the amount of which does not change in the medium term (a year or more) and does not depend on the volume of the company's core activities, i.e., they will exist even if the activity is suspended or terminated.
Having considered fixed costs on the example of an enterprise, it is easier to understand their essence and interdependence with the volume of the main activity.
So, they include the following items of expenses:
- depreciation charges for the company's fixed assets;
- rent, tax payments to the budget, contributions to extra-budgetary funds;
- bank expenses for servicing current accounts, organization loans;
- remuneration fund for administrative and managerial personnel;
- other general business expenses necessary to ensure the normal functioning of the enterprise.
Thus, the essence of the fixed costs of any organization is reduced to their functional necessity for the implementation of activities. They can and most often change over time, but the reason for this is external factors (change in the tax burden, adjustment of the terms of service in the bank, renegotiation of contracts with service organizations, change in tariffs for utilities, etc.).
Internal factors influencing the change in fixed costs - this is a significant change corporate policy, personnel remuneration systems, a significant change in the volume or direction of the company's activities (not just a change in volumes, but a cardinal transition to a new level).
Under the influence of all these factors, there is a change in fixed costs, usually they are characterized by sharp fluctuations in the amount of costs.
For the purposes of accounting and analysis, the expenses of the enterprise are usually divided into constant and variable, using the following methods:
- Based on experience and knowledge, a certain category is assigned to expenses through a management decision. This method is good when the company is just starting its activity and there are simply no other ways of attributing costs. It is characterized by a high level of subjectivity and requires revision in the long term.
- Based on the data of the conducted analytical work on the search, assessment and differentiation of all expenses by categories based on their behavior under the influence of the factor of changes in the volume of the main activity. It is the most acceptable, since this method is more objective.
For information on which of the costs in which group you need to determine, see the following video:
How to calculate them?
Fixed costs are calculated using the formula:
POSTz = W salary + W rent + W Banking services+ Depreciation + Taxes + General, where:
- POSTZ - fixed costs;
- 3 salary - the cost of salaries of administrative and managerial personnel;
- Lease - lease expenses;
- Banking services - banking services;
- PROSHHOZR - other general operating expenses.
To find the indicator of the average fixed costs per unit of output, you must apply the following formula:
SrPOST = POST / Q, where:
- Q is the volume of products (their quantity).
The analysis of these indicators must be carried out in dynamics, evaluating the retrospective values at different time intervals, including with a joint analysis of other economic indicators. This will allow you to see the relationship of processes specific to the enterprise, which means you can get a cost management tool in the future.
Economic meaning
Fixed cost analysis performed both on an operational basis and with a view to strategic planning, allows you to assess the capabilities of the enterprise to improve the efficiency of its activities. This is the key economic meaning of this category.
The easiest and most affordable way to analyze the performance of a company is to assess the break-even point indicator, including in dynamics. To carry out calculations, data on the amount of fixed costs, the unit price and average variable costs are required:
TB = POSTZ / (C1 - SRPEREMZ), where:
- TB - break-even point;
- POSTZ - constant spending;
- C1 - price per unit. products;
- СрПРЕМЗ - average variable costs per unit of production.
The break-even point is an indicator that allows you to see the border beyond which the company's activities begin to make a profit, as well as to analyze the dynamics of the impact of changes in costs on the volume of production and profit of the organization. The decrease in the break-even point with constant variable costs is positively assessed, this signals an increase in the efficiency of the enterprise's expenses. The growth of the indicator should be assessed positively when it occurs against the background of an increase in sales, that is, it speaks of building up and expanding the scope of activities.
Thus, accounting, analysis and control of fixed costs, reducing their load on a unit of manufactured products are mandatory measures necessary for every enterprise to achieve competent resource and capital management.
All types of costs of the company in the short run are divided into fixed and variable.
Fixed costs(FC - fixed cost) - such costs, the value of which remains constant when the volume of production changes. Fixed costs are the same at any level of production. The firm must carry them even if it does not manufacture products.
Variable costs(VC - variable cost) - these are costs, the value of which changes when the volume of production changes. Variable costs increase as production increases.
Gross costs(TC - total cost) is the sum of fixed and variable costs. At zero output, gross costs are constant. As the volume of production increases, they increase in accordance with the increase in variable costs.
It is necessary to give examples of different types of costs and explain their change in connection with the operation of the law of diminishing returns.
The average costs of the firm depend on the value of the aggregate fixed, aggregate variable and gross costs. Average costs are determined per unit of output. They are usually used for comparison with the unit price.
In accordance with the structure of total costs, firms distinguish between average fixed costs (AFC - average fixed cost), average variables (AVC - average variable cost), average gross (ATC - average total cost) costs. They are defined as follows:
ATC = TC: Q = AFC + AVC
One of the important indicators is the marginal cost. Marginal cost(MC - marginal cost) is the additional cost associated with the production of each additional unit of production. In other words, they characterize the change in gross costs caused by the release of each additional unit of output. In other words, they characterize the change in gross costs caused by the release of each additional unit of output. The marginal cost is determined as follows:
If ΔQ = 1, then MC = ΔTC = ΔVC.
The dynamics of the total, average and marginal costs of the firm using hypothetical data are shown in Table.
Dynamics of total, marginal and average costs of the firm in the short run
| Production volume, units Q | Total costs, p. | Marginal costs, p. MC | Average costs, p. | ||||
| constant FC | VC variables | gross vehicles | permanent AFC | AVC variables | gross ATC | ||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| 0 | 100 | 0 | 100 | — | — | — | — |
| 1 | 100 | 50 | 150 | 50 | 100 | 50 | 150 |
| 2 | 100 | 85 | 185 | 35 | 50 | 42,5 | 92,5 |
| 3 | 100 | 110 | 210 | 25 | 33,3 | 36,7 | 70 |
| 4 | 100 | 127 | 227 | 17 | 25 | 31,8 | 56,8 |
| 5 | 100 | 140 | 240 | 13 | 20 | 28 | 48 |
| 6 | 100 | 152 | 252 | 12 | 16,7 | 25,3 | 42 |
| 7 | 100 | 165 | 265 | 13 | 14,3 | 23,6 | 37,9 |
| 8 | 100 | 181 | 281 | 16 | 12,5 | 22,6 | 35,1 |
| 9 | 100 | 201 | 301 | 20 | 11,1 | 22,3 | 33,4 |
| 10 | 100 | 226 | 326 | 25 | 10 | 22,6 | 32,6 |
| 11 | 100 | 257 | 357 | 31 | 9,1 | 23,4 | 32,5 |
| 12 | 100 | 303 | 403 | 46 | 8,3 | 25,3 | 33,6 |
| 13 | 100 | 370 | 470 | 67 | 7,7 | 28,5 | 36,2 |
| 14 | 100 | 460 | 560 | 90 | 7,1 | 32,9 | 40 |
| 15 | 100 | 580 | 680 | 120 | 6,7 | 38,6 | 45,3 |
| 16 | 100 | 750 | 850 | 170 | 6,3 | 46,8 | 53,1 |
Based on the table. we will build graphs of fixed, variable and gross, as well as average and marginal costs.
The fixed cost FC graph is a horizontal line. The graphs of variables VC and gross vehicle costs have a positive slope. In this case, the steepness of the VC and TC curves first decreases, and then, as a result of the action of the law of diminishing returns, increases.
Average fixed costs AFC has a negative slope. The curves of average variable costs AVC, average gross costs ATC and marginal costs MC are arcuate, that is, they first decrease, reach a minimum, and then take on a rising form.
Noteworthy relationship between plots of mean variablesAVCand marginal MS costs, as well as between the curves of average gross ATC and marginal MS costs... As seen in the figure, the MC curve intersects the AVC and ATC curves at their minimum points. This is because as long as the marginal, or additional, costs associated with the production of each additional unit of output are less than the average variable or average gross costs that were before the production of a given unit, the average costs are reduced. However, when the marginal cost of a certain unit of production exceeds the average, which was before its production, the average variable and average gross costs begin to increase. Consequently, the equality of marginal costs with average variables and average gross costs (points of intersection of the MC graph with the AVC and ATC curves) is achieved at the minimum value of the latter.
Between marginal productivity and marginal cost there is a reverse addiction... As long as the marginal productivity of a variable resource increases and the law of diminishing returns does not apply, marginal costs are reduced. When marginal productivity is at its maximum, marginal cost becomes minimal. Then, when the law of diminishing returns comes into play and marginal productivity decreases, marginal cost increases. Thus, the curve of marginal costs MC is a mirror image of the curve of marginal productivity of MC. A similar relationship also exists between the graphs of average productivity and average variable costs.
