The types of costs are fixed and variable. Variable costs: an example

VARIABLE COSTS

(variable cost) Variable costs are the part of costs that changes depending on the level of output. They are the opposite of the fixed cost that is required to make output possible at all; they are independent of the release level. It should be borne in mind that this is a fundamental difference. The price of a resource used may be stable over the years, but it is still a variable cost if the amount of that resource used depends on the release. The price of other resources may change, but they will still be attributed to fixed costs if the amount of resources used does not depend on the output level.

Economy. Dictionary. - M .: "INFRA-M", Publishing house "Ves Mir". J. Black. General edition: Doctor of Economics Osadchaya I.M.. 2000 .

Economic Dictionary . 2000 .

See what "VARIABLE COSTS" are in other dictionaries:

- (variable costs) See: overhead costs. Business. Dictionary. M .: INFRA M, Ves Mir Publishing House. Graham Betts, Barry Braindley, S. Williams et al. General editorship: Ph.D. Osadchaya I.M .. 1998 ... Business glossary

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variable costs- Costs that are directly related to the volume of production, such as direct material costs or labor costs required to create a finished product. See also fixed cost ... Financial and investment explanatory dictionary

Variable costs- costs, the size of which depends on the volume of production of the company ... Economics: glossary

Variable costs are types of costs, the amount of which changes in proportion to the change in production volumes. Contrasted with fixed costs, which add up to total costs. The main feature by which you can determine ... ... Wikipedia

Variable costs- monetary and opportunity costs, which change in response to changes in the volume of products. Together with fixed costs, they form total costs... To P. and. include the costs of wages, fuel, materials, etc ... Dictionary of Economic Theory

variable costs- see variable capital ... Dictionary of many expressions

Costs directly related to the volume of production, varying depending on the volume, for example, the cost of materials, raw materials, semi-finished products, piece-rate workers. Economic Dictionary. 2010 ... Economic Dictionary

Costs are those costs incurred by a firm to create a service or product. As a result of the addition of all costs, the cost of the goods is obtained, that is, the price of the goods is formed below which it is unprofitable to sell products on the market.

Fixed and variable production costs

When analyzing costs, you can distinguish their different classification, depending on the method of consideration. For example, fixed and variable production costs. The first type of costs includes costs that are incurred at any stage of production and in any case, regardless of the volume of products produced. Even if the enterprise has temporarily suspended production, the fixed costs must be carried out. Fixed production costs include: rent for premises, depreciation, administrative and management costs, equipment maintenance and premises security, heating and electricity costs, and more. If the company has received a loan, then the payment of interest also refers to fixed costs.

Fixed production costs are associated with the functioning of the company, regardless of the amount of goods produced. The ratio of the volume of manufactured goods to the volume of fixed costs is called average fixed costs. Average fixed costs show the cost per unit of output. As we said above, the amount of fixed costs does not depend on the quantity of the product produced, so the average fixed cost decreases as the quantity of the product increases. As production increases, the amount of expenditure is spread over more products. Often in practice, fixed costs are called overhead costs.

Variable production costs include the cost of purchasing raw materials, energy costs, transport, fuels and lubricants, wages of production workers, etc. Variable production costs depend on the quantity of products produced and on the volume of production.

The set of fixed (FС) and variable (VC) costs is called total costs (TC), which form the cost of production. They are calculated using the formula: TC = FC + VC. As a general rule, costs increase as production expands.

Unit costs can be average constant (AFC), average variable (AVC), or average total (ATC). Calculated as follows:

1. AFC = fixed costs / volume of goods released

2. AVC = variable costs / volume of goods released

3. ATC = total costs (or average fixed + average variables) / volume of goods produced

At the initial stages of production, the maximum costs, as the volumes increase, the average costs decrease, reach the minimum level, and then begin to grow.

If it is required to determine the amount of costs required for the release of an additional unit of output, then the marginal production costs are calculated, which show the costs with an increase in production for the last unit of output.

Fixed production costs: examples

Fixed costs - these are costs that remain unchanged regardless of the volume of products, even with idle time, these costs are incurred. When the fixed and variable costs are summed up, the total costs are obtained, which form the cost of production.

Examples of fixed costs:

Rent payments.
Real estate taxes.
Office staff salaries and others.

But fixed costs are such only for short-term analysis, since over a long period, costs can change due to an increase or decrease in production, changes in taxes and rents, and so on.

Still have questions about accounting and taxes? Ask them on the accounting forum.

Fixed costs: details for the accountant

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The costs of the enterprise can be considered in the analysis from various points of view. They are classified based on various characteristics. From the standpoint of the influence of product turnover on costs, they can be dependent or independent of an increase in sales. Variable costs, the example of the definition of which requires careful consideration, allow the head of the company to manage them by increasing or decreasing sales. finished products... This is why they are so important to understand. correct organization activities of any enterprise.

general characteristics

Variables (Variable Cost, VC) are those costs of an organization that change with an increase or decrease in the growth of sales of manufactured products.

For example, upon termination of a company, variable costs should be zero. An enterprise, in order to carry out its activities effectively, will need to regularly evaluate its cost indicator. After all, it is they who affect the size of the cost of finished products and turnover.

Such items.

The book value of raw materials, energy resources, materials that are directly involved in the production of finished products.
Cost of manufactured products.
The salary of employees, depending on the implementation of the plan.
Percentage from the activities of sales managers.
Taxes: VAT, tax on the USN, USN.

Understanding variable costs

To correctly understand such a concept as variable costs, an example of their definition should be considered in more detail. Thus, production in the process of fulfilling its production programs spends a certain amount of materials from which the final product will be made.

These costs can be attributed to variable direct costs. But some of them should be separated. A factor such as electricity can be attributed to fixed costs. If the cost of lighting the territory is taken into account, then they should be attributed specifically to this category. Electricity directly involved in the manufacturing process of products is classified in the short term as variable costs.

There are also costs that depend on the turnover, but are not directly proportional. production process... This trend can be caused by insufficient workload (or excess) of production, a discrepancy between its design capacity.

Therefore, in order to measure the efficiency of the enterprise in the field of managing its costs, one should consider variable costs as obeying a line schedule over a segment of normal production capacity.

Classification

There are several types of classifications for variable costs. With a change in costs, implementation is distinguished:

proportional costs, which increase in the same way as the volume of production;
progressive costs, increasing at a faster rate than implementation;
degressive costs, which increase at a slower rate with the growth of production rates.

According to statistics, the variable costs of the firm can be:

general (Total Variable Cost, TVC), which are calculated across the entire product range;
averages (AVC, Average Variable Cost), calculated per unit of goods.

According to the method of accounting for the cost of finished products, there are variables (they can be easily attributed to the cost) and indirect (it is difficult to measure their contribution to the cost).

With regard to the technological output of products, they can be production (fuel, raw materials, energy, etc.) and non-production (transportation, interest to the intermediary, etc.).

General variable costs

The output function is similar to variable costs. It is continuous. When all costs are brought together for analysis, total variable costs are obtained for all products of one enterprise.

When common variables are combined and their total is obtained in the enterprise. This calculation is carried out in order to reveal the dependence of the changed costs on the volume of production. Next, using the formula, the variable marginal costs are found:

MS = ΔVC / ΔQ, where:

MC - marginal variable costs;
ΔVC is the increase in variable costs;
ΔQ is the increase in the volume of output.

Calculation of average costs

Average Variable Cost (AVC) is a company's resources per unit of output. Within a certain range, production growth has no effect on them. But when the design power is reached, they begin to increase. This behavior of the factor is explained by the heterogeneity of costs and their increase at a large scale of production.

The presented indicator is calculated as follows:

AVC = VC / Q, where:

VC - the number of variable costs;
Q is the number of products released.

In terms of dimensions, the average variable costs in the short run are similar to the change in average total costs. The higher the output of finished products, the more the total costs begin to correspond to the increase in variable costs.

Calculation of variable costs

Based on the above, a variable cost (VC) formula can be defined:

VC = Cost of materials + Raw materials + Fuel + Electricity + Bonus salary + Percentage of sales to agents.
VC = Gross Profit - Fixed Cost.

The sum of variable and fixed costs is equal to the indicator of the total costs of the organization.

The calculations of which were presented above are involved in the formation of their general indicator:

Total costs = Variable costs + Fixed costs.

Definition example

To gain a deeper understanding of how variable costs are calculated, consider an example from a calculation. For example, a company characterizes its output with the following points:

Material and raw material costs.
Energy costs for production.
The salary of workers who produce products.

It is argued that variable costs are directly proportional to the growth in sales of finished products. This fact is taken into account to determine the break-even point.

For example, it was calculated that there were 30 thousand units of products. If you build a graph, then the level of breakeven production will be zero. If the volume is reduced, the company's activities will move to the unprofitable plane. And similarly, with an increase in production volumes, the organization will be able to receive a positive net profit.

How to reduce variable costs

The strategy of using "economies of scale", which manifests itself with an increase in production volumes, can increase the efficiency of an enterprise.

The reasons for its appearance are as follows.

Using the achievements of science and technology, conducting research, which increases the manufacturability of production.
Reducing the cost of wages for managers.
Narrow specialization of production, which allows you to perform each stage of production tasks with a higher quality. At the same time, the percentage of rejects decreases.
Introduction of technologically similar production lines, which will provide additional capacity utilization.

At the same time, variable costs are observed below the growth in sales. This will increase the efficiency of the company.

Having become familiar with such a concept as variable costs, an example of the calculation of which was given in this article, financial analysts and managers can develop a number of ways to reduce overall production costs and reduce production costs. This will make it possible to effectively manage the rate of turnover of the company's products.

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

Variable cost concept

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, yeast can be cited as an example of variable costs for such an enterprise. These costs will grow in proportion to the growth in the volume of bakery products produced.

One cost item can relate to both variable and fixed costs. Thus, the cost of electricity for production ovens that bake bread will serve as an example of variable costs. And the electricity bill for lighting a production building is a fixed cost.

There is also such a thing as conditional variable costs. They are related to production volumes, but to a certain extent. With a small level of production, some costs still do not decrease. If the production furnace is half-charged, the electricity consumption is the same as for the full furnace. That is, in this case, with a decrease in production, costs do not decrease. But with an increase in output volumes above a certain value, costs will increase.

The main types of variable costs

Here are some examples of variable costs of an enterprise:

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

Variable costs are divided into direct and indirect

This separation exists due to the fact that different variable costs are included in the cost of a product in different ways.

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

Indirect costs are allocated to the entire volume of goods produced in accordance with a defined base.

Average variable costs

This indicator is calculated by dividing all variable costs by the volume of production. Average variable costs can both decrease and increase as production volumes increase.

Consider an example of average variable costs in a bakery. The variable costs for the month amounted to 4,600 rubles, the output was 212 tons. Thus, the average variable costs will amount to 21.70 rubles / ton.

The concept and structure of fixed costs

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

Fixed production costs usually include the following:

rent for premises, shops, warehouses;
utility bills;
administration salary;
the cost of fuel and energy resources that are consumed not by production equipment, but by lighting, heating, transport, etc .;
advertising costs;
payment of interest on bank loans;
purchase of office supplies, paper;
costs for 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 cost of the organization. As production volumes increase, gross costs increase in terms of variable costs.

All costs, in fact, represent payments for the acquired 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 the main activity: divide the profit by the amount of costs. Profitability shows the effectiveness of the organization. The higher the profitability, the better the organization performs. If profitability is below zero, then expenses exceed revenues, that is, the organization's activities are ineffective.

Enterprise Cost Management

It is important to understand the nature of variable and fixed costs. With proper cost management in the enterprise, their level can be reduced and more profit can be obtained. It is practically impossible to reduce fixed costs, therefore, effective work to reduce costs can be carried out in terms of variable costs.

How you can reduce costs in the enterprise

In each organization, work is structured differently, but basically there are the following ways to reduce costs:

1. Reducing labor costs. It is necessary to consider the issue of optimizing the number of employees, tightening production standards. Some employee can be reduced, and his responsibilities can be distributed among the rest with additional payment for additional work. If the enterprise grows production volumes and it becomes necessary to hire additional people, then you can go by revising production standards and or increasing the volume of work in relation to old workers.

2. Raw materials and supplies are an important part of variable costs. Examples of their reduction can 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 analogs;
implementation of joint purchases of raw materials with other buyers from one supplier;
self-production of some of the components used in production.

3. Reducing production costs.

This can be a selection of other options for rent payments, sublease of premises.

This also includes saving on utility bills, for which it is necessary to use electricity, water, and heat carefully.

Savings on the repair 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 more economical to narrow production, transfer some side functions to another manufacturer. Or, on the contrary, to enlarge production and carry out some functions independently, refusing to cooperate with subcontractors.

Other areas of cost reduction can be the organization's transportation, advertising, tax reduction, and debt settlement.

Any business must consider its costs. Working to reduce them will bring more profit and increase the efficiency of the organization.