To determine total costs production of different volumes of output and costs per unit of output, it is necessary to combine production data included in the law of diminishing returns with information on resource prices. As already noted, over a short period of time, some resources associated with the technical equipment of the enterprise remain unchanged. The number of other resources may vary. It follows that in the short run different kinds costs can be classified as either fixed or variable.
fixed costs. Fixed costs are those costs that do not change with changes in the volume of production. Fixed costs associated with existence itself production equipment company and must be paid even if the firm does not produce anything. Fixed costs, as a rule, include payment of obligations under bonded loans, bank loans, rent payments, security of the enterprise, payment utilities(telephone, lighting, sewage), as well as time wages for employees of the enterprise.
variable costs . Variables are called such costs, the value of which varies depending on changes in the volume of production. These include the cost of raw materials, fuel, energy, transport services, for most labor resources etc. The amount of variable costs varies depending on the volume of production.
General costs is the sum of fixed and variable costs for any given volume of production.
General, fixed and variable costs will be shown on the graph (see Fig. 1).
At zero output, the total cost is equal to the firm's fixed costs. Then, for the production of each additional unit of output (from 1 to 10), the total cost changes by the same amount as the sum of variable costs.
The sum of variable costs varies from the origin, and the sum of fixed costs is added to the vertical dimension of the sum of variable costs each time to obtain a total cost curve.
The distinction between fixed and variable costs is significant. Variable costs are costs that can be managed quickly, their value can be changed over a short period of time by changing the volume of production. On the other hand, fixed costs obviously out of the control of the firm's management. Such costs are mandatory and must be paid regardless of the volume of production.
short term - this is the period of time during which some factors of production are constant, while others are variable.
Fixed factors include fixed assets, the number of firms operating in the industry. In this period, the company has the opportunity to vary only the degree of utilization of production capacities.
Long term is the length of time during which all factors are variable. In the long run, the firm has the ability to change the overall dimensions of buildings, structures, the amount of equipment, and the industry - the number of firms operating in it.
fixed costs ( FC ) - these are costs, the value of which in the short run does not change with an increase or decrease in the volume of production.
Fixed costs include costs associated with the use of buildings and structures, machinery and production equipment, rent, major repairs, as well as administrative costs.
Because As production increases, total revenue increases, then average fixed costs (AFC) are a decreasing value.
variable costs ( VC ) - These are costs, the value of which varies depending on the increase or decrease in the volume of production.
Variable costs include the cost of raw materials, electricity, auxiliary materials, labor costs.
Average Variable Costs (AVC) are:
Total costs ( TC ) - a set of fixed and variable costs of the company.
Total costs are a function of the output produced:
TC = f(Q), TC = FC + VC.
Graphically, the total costs are obtained by summing the curves of fixed and variable costs (Figure 6.1).
The average total cost is: ATC = TC/Q or AFC +AVC = (FC + VC)/Q.
Graphically, ATC can be obtained by summing the AFC and AVC curves.
marginal cost ( MC ) is the increase in total cost due to an infinitesimal increase in production. Under marginal cost usually understand the costs associated with the production of an additional unit of output.
Lecture:
Fixed and variable costs
success entrepreneurial activity(business) is determined by the amount of profit, the calculation of which is made according to the formula: revenue - costs = profit .
What expenses should the manufacturer incur in order to create a product or service? It:
- expenses for raw materials and materials;
- expenses for utilities, transport and other services;
- payment of taxes, insurance premiums, interest on a loan;
- payment of salaries to employees;
- depreciation deductions.
Costs are otherwise known as production costs. They are fixed and variable. The fixed and variable costs of the firm for the production and sale of a unit of goods constitute its cost price which is expressed in monetary terms.
fixed costs- these are costs that do not depend on the volume of output, that is, costs that the manufacturer is forced to make even if his income does not amount to a ruble.
These include:
- rent payments;
- taxes;
- interest on loans;
- insurance payments;
- utility bills;
- salary management personnel(administrators, salaries of managers, accountants, etc.);
- depreciation deductions (expenses for the replacement or repair of worn-out equipment).
variable costs These are costs, the value of which depends on the volume of products produced.
Among them:
- expenses for raw materials and materials;
- fuel costs;
- payment for electricity;
- piecework wages for hired workers;
- transportation costs;
- shipping and packaging costs.
External and internal costs
Fixed and variable costs are reflected in the accounting report of the company and therefore are external. But when analyzing the profitability of the enterprise, the manufacturer also takes into account the internal or hidden costs associated with the actual resources used. For example, Andrei opened a store in his premises and works in it himself. He uses his own premises and his own labor, and the monthly income from the store is 20,000 rubles. Andrey can use the same resources in an alternative way. For example, renting a room for 10,000 rubles. per month and getting a job as a manager in big firm for a fee of 15,000 rubles. We see a difference in income of 5,000 rubles. This is the internal cost - the money that the manufacturer donates. An analysis of internal costs will help Andrey use his own resources more profitably.
There are a large number of ways in which a company makes a profit, and the fact of cost is important. Costs are the real costs incurred by the company in its operation. If a company is unable to pay attention to the category of costs, then the situation may become unpredictable and profit margins may decrease.
Fixed production costs must be analyzed when constructing their classification, with which you can determine the idea of their properties and main characteristics. The main classification of production costs includes fixed, variable, general costs.
Fixed costs of production
Fixed costs of production are an element of the break-even point model. They are costs regardless of the volume of output and are opposed to variable costs. The sum of fixed and variable costs represent the total costs of the enterprise. Fixed costs can be made up of several elements:
- room rental,
- deductions for depreciation,
- management and administrative staff costs,
- the cost of machines, machinery and equipment,
- security of premises for production,
- payment of interest on loans to banks.
Fixed costs are represented by the costs of enterprises, which are unchanged in short periods and do not depend on changes in production volumes. This type of cost must be paid even if the enterprise does not produce anything.
Average fixed costs
Average fixed costs can be obtained by calculating the ratio of fixed costs and output. So the average fixed cost is constant flow for the release of products. In sum, fixed costs do not depend on production volumes. For this reason, average fixed costs will tend to decrease as the number of products produced increases. This is due to the fact that with an increase in production volumes, the amount of fixed costs is distributed over a larger number of products.
Features of fixed costs
Fixed costs in the short run do not change with changes in output. Fixed costs are sometimes referred to as sunk costs or overheads. Fixed costs include the costs of maintaining buildings, space, and purchasing equipment. The fixed cost category is used in several formulas.
Thus, when determining total costs (TC), a combination of fixed and variable costs is needed. The total costs are calculated by the formula:
This type of cost increases with the increase in production volumes. There is also a formula for determining the total fixed costs, which are calculated by dividing the fixed costs by a certain volume of manufactured products. The formula looks like this:
Average fixed costs are used to calculate average total costs. Average total costs are found through the sum of average fixed and variable costs according to the formula:
Fixed costs in the short run
In the production of products, living and past labor has been expended. In this case, each enterprise seeks to obtain the greatest profit from its operation. In this case, each enterprise can go in two ways - to sell products more expensively or to reduce their production costs.
In accordance with the time it takes to change the amount of resources used in production processes, it is customary to distinguish between long-term and short-term periods of the enterprise. The short-term interval is the time interval during which the size of the enterprise, its output and costs change. At this time, the change in the volume of products occurs through a change in volume variable costs. In short-term periods, an enterprise can quickly change only variable factors, including raw materials, labor, fuel, and auxiliary materials. The short run divides costs into fixed and variable. During such periods, fixed costs are mainly provided, determined by fixed costs.
The fixed costs of production get their name in accordance with their invariable nature and independence in relation to the volume of production.
The implementation of any activity of companies is impossible without investing costs in the process of making a profit.
However, costs are different types. Some operations during the operation of the enterprise require constant investments.
But there are also costs that are not fixed costs, i.e. are related to variables. How do they affect the production and sale of finished products?
The concept of fixed and variable costs and their differences
The main purpose of the enterprise is the manufacture and sale of manufactured products for profit.
To produce products or provide services, you must first purchase materials, tools, machines, hire people, etc. It requires investment of various amounts Money which are called "costs" in economics.
Since monetary investments in production processes are of various types, they are classified depending on the purpose of using the costs.
In economics costs are shared by these properties:
- Explicit - this is a type of direct cash costs for making payments, commission payments trading companies, payment banking services, transport costs, etc.;
- Implicit, which include the cost of using the resources of the owners of the organization, not provided for by contractual obligations for explicit payment.
- Permanent - this is an investment in order to ensure stable costs in the production process.
- Variables are special costs that can be easily adjusted without affecting operations, depending on changes in output.
- Irrevocable - a special option for spending movable assets invested in production without return. These types of expenses occur at the beginning of the issue new products or reorientation of the enterprise. Once spent, the funds can no longer be used to invest in other business processes.
- Average costs are estimated costs that determine the amount of capital investment per unit of output. Based on this value, the unit price of the product is formed.
- Marginal - this is the maximum amount of costs that cannot be increased due to the inefficiency of further investments in production.
- Returns - the cost of delivering products to the buyer.
From this list of costs, fixed and variable types are important. Let's take a closer look at what they consist of.
Kinds
What should be attributed to fixed and variable costs? There are some principles on which they differ from each other.
In economics characterize them as follows:
- fixed costs include the costs that must be invested in the production of products within one production cycle. For each enterprise, they are individual, therefore, they are taken into account by the organization independently based on the analysis production processes. It should be noted that these costs will be typical and the same in each of the cycles during the manufacture of goods from the beginning to the sale of products.
- variable costs that can change in each production cycle and are almost never repeated.
Fixed and variable costs add up to total costs, summed up after the end of one production cycle.
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What applies to them
The main characteristic of fixed costs is that they do not actually change over a period of time.
AT this case, for an enterprise that decides to increase or decrease the volume of output, such costs will remain unchanged.
Among them can be attributed such costs:
- communal payments;
- building maintenance costs;
- rent;
- employee earnings, etc.
In this scenario, it should always be understood that the constant amount of total costs invested in certain period time for the release of products in one cycle, will be only for the total number of manufactured products. When such costs are calculated piece by piece, their value will decrease in direct proportion to the growth in production volumes. For all types of industries, this pattern is an established fact. 
Variable costs depend on changes in the quantity or volume of products produced.
To them refer such expenses:
- energy costs;
- raw materials;
- piecework wages.
These cash investments are directly related to production volumes, and therefore vary depending on the planned parameters of output.
Examples
In each production cycle there are cost amounts that do not change under any circumstances. But there are also costs associated with production factors. Depending on these features economic costs for a certain, small period of time are called constants or variables.
For long-term planning, such characteristics are not relevant, because Sooner or later, all costs tend to change.
Fixed costs - ϶ᴛᴏ costs that do not depend in the short run on how much the company produces. It is worth noting that they represent the costs of its constant factors of production, independent of the quantity of goods produced.
Depending on the type of production into fixed costs The following expenses are included:
Any costs that are not related to the release of products and are the same in the short period of the production cycle can be included in fixed costs. According to this definition, it can be stated that variable costs are such costs that are invested directly in output. Their value always depends on the volume of products or services produced.
Direct investment of assets depends on the planned amount of production.
Based on this characteristic, to variable costs include the following costs:
- raw material reserves;
- payment of remuneration for the work of workers engaged in the manufacture of products;
- delivery of raw materials and products;
- energy resources;
- tools and materials;
- other direct costs of producing products or providing services.
The graphical representation of variable costs displays a wavy line that smoothly rushes up. At the same time, with an increase in production volumes, it first rises in proportion to the increase in the number of manufactured products, until it reaches point "A".
Then there is cost savings in mass production, in connection with which the line no longer rushes up at a slower speed (section "A-B"). After the violation of the optimal expenditure of funds in variable costs after the point "B", the line again takes a more vertical position.
The growth of variable costs can be influenced by the irrational use of funds for transportation needs or excessive accumulation of raw materials, volumes of finished products during a decrease in consumer demand.
Calculation procedure
Let's give an example of calculating fixed and variable costs. Production is engaged in the manufacture of shoes. The annual output is 2000 pairs of boots.
The enterprise has the following types of expenses per calendar year:
- Payment for renting the premises in the amount of 25,000 rubles.
- Payment of interest 11,000 rubles. for a loan.
Production costs goods:
- for wages when issuing 1 pair of 20 rubles.
- for raw materials and materials 12 rubles.
It is necessary to determine the size of the total, fixed and variable costs, as well as how much money is spent on the manufacture of 1 pair of shoes.
As you can see from the example, only rent and interest on a loan can be added to fixed or fixed costs.
Due to the fact that fixed costs do not change their value with a change in production volumes, then they will amount to the following amount:
25000+11000=36000 rubles.
The cost of making 1 pair of shoes is a variable cost. For 1 pair of shoes total costs amount to the following:
20+12= 32 rubles.
For the year with the release of 2000 pairs variable costs in total are:
32x2000=64000 rubles.
General costs calculated as the sum of fixed and variable costs:
36000+64000=100000 rubles.
Let's define average total cost, which the company spends on tailoring one pair of boots:
100000/2000=50 rubles.
Cost analysis and planning
Each enterprise must calculate, analyze and plan the costs of production activities.
Analyzing the amount of costs, options are considered for saving funds invested in production in order to rational use. This allows the company to reduce the output and, accordingly, set more cheap price on the finished products. Such actions, in turn, allow the company to successfully compete in the market and ensure continuous growth.
Any enterprise should strive to save production costs and optimize all processes. The success of the development of the enterprise depends on this. Due to the reduction of costs, the company significantly increases, which makes it possible to successfully invest in the development of production.
Costs planned taking into account the calculations of previous periods. Depending on the volume of output, they plan to increase or decrease the variable costs of manufacturing products.
Display in the balance sheet
AT financial statements all information about the costs of the enterprise is entered in (form No. 2).
Preliminary calculations during the preparation of indicators for entering in can be divided into direct and indirect costs. If these values are shown separately, then we can assume such reasoning that indirect costs will be indicators of fixed costs, and direct costs, respectively, are variables.
It is worth considering that there is no data on costs in the balance sheet, since it reflects only assets and liabilities, and not expenses and incomes.
For information on what fixed and variable costs are and what applies to them, see the following video material: