In the activity of any enterprise, the adoption of correct management decisions is based on the analysis of its performance indicators. One of the objectives of such an analysis is to reduce production costs, and, consequently, increase the profitability of the business.
Permanent and variable costs, their accounting is an integral part of not only the calculation of the cost of production, but also the analysis of the success of the enterprise as a whole.
The correct analysis of these articles allows you to take effective management decisions which have a significant impact on profits. For the purposes of analysis, in computer programs at enterprises, it is convenient to provide for automatic separation of costs into fixed and variable based on primary documents, in accordance with the principle adopted by the organization. This information is very important for determining the "break-even point" of the business, as well as assessing the profitability various kinds products.
variable costs
to variable costs include costs that are constant per unit of output, but their total amount is proportional to the volume of output. These include the cost of raw materials, expendable materials, energy resources involved in the main production, salary of the main production staff(together with accruals) and the cost of transport services. These costs are directly related to the cost of production. In value terms, variable costs change when the price of goods or services changes. Unit variable costs, for example, for raw materials in the physical dimension, may decrease with an increase in production volumes due, for example, to a decrease in losses or costs for energy resources and transport.
Variable costs are either direct or indirect. If, for example, the enterprise produces bread, then the cost of flour is a direct variable cost, which increases in direct proportion to the volume of bread produced. Direct variable costs may decrease with the improvement of the technological process, the introduction of new technologies. However, if the plant refines oil and as a result receives in one technological process, for example, gasoline, ethylene and fuel oil, then the cost of oil for the production of ethylene will be variable, but indirect. Indirect variable costs in this case, it is usually taken into account in proportion to the physical volumes of production. So, for example, if during the processing of 100 tons of oil, 50 tons of gasoline, 20 tons of fuel oil and 20 tons of ethylene are obtained (10 tons are losses or waste), then the cost of 1.111 tons of oil (20 tons of ethylene + 2.22 tons of waste) is attributed to the production of one ton of ethylene /20 tons of ethylene). This is due to the fact that in a proportional calculation, 20 tons of ethylene account for 2.22 tons of waste. But sometimes all the waste is attributed to one product. For calculations, data from technological regulations are used, and for analysis, actual results for the previous period.
The division into direct and indirect variable costs is conditional and depends on the nature of the business.
Thus, the cost of gasoline for the transportation of raw materials during oil refining is indirect, and for transport company direct, since they are directly proportional to the volume of traffic. The wages of production personnel with accruals are classified as variable costs with piecework wages. However, with time wages, these costs are conditionally variable. When calculating the cost of production, planned costs per unit of production are used, and in the analysis, actual costs, which may differ from planned costs, both upwards and downwards. Depreciation of fixed assets of production, referred to a unit of output, is also a variable cost. But this relative value is used only when calculating the cost of various types of products, since depreciation, in itself, is fixed costs/expenses.
Each enterprise, regardless of its size, uses certain resources in the course of economic and financial activities: labor, material, financial. These consumed resources are the costs of production. They are divided into fixed costs and variable costs. Without them it is impossible to implement economic activity and making a profit. The division into variable and fixed costs allows you to competently and efficiently make the most optimal management decisions, which helps to increase the profitability of the enterprise.
Fixed costs are all types of resources directed to production and independent of its volume. They also do not depend on the number of services rendered or goods sold. These costs are almost always the same throughout the year. Even if the enterprise temporarily stops the production of products or stops the provision of services, these costs will not stop. We can distinguish such fixed costs inherent in almost any enterprise:
Permanent employees of the enterprise (salaries);
Deduction for social insurance;
rent, leasing;
Tax deductions on the property of the enterprise;
Payment for services various organizations(communication, security, advertising);
Calculated by the straight-line method.
Such expenses will always exist while the enterprise carries out its economic and financial activities. They are there regardless of whether it receives income or not.
Variable costs - the costs of the enterprise, which change in proportion to the volume of production marketable products. They are directly related to production volumes. The main items of variable costs include:
Materials and raw materials required for production;
Piecework salary (according to the percentage of remuneration to sales agents;
The cost of commercial products purchased from other enterprises, intended for resale.
The main point of variable costs is that when an enterprise has income, they may occur. The company spends part of its income Money for the purchase of raw materials, materials, goods. At the same time, the money spent is transformed into liquid assets in the warehouse. The company also pays interest to agents only from the income received.
Such a division into fixed costs and variables is necessary for the full management of the business. It is used to calculate the "break-even point" of the enterprise. The lower the fixed costs, the lower it is. decline specific gravity such costs are sharply reduced and entrepreneurial risk.
The division of costs into fixed and variable is widely used in the theory of microeconomics. It is also used to determine specific types of costs, since it is beneficial for the company to reduce fixed costs. The growth in production volume reduces part of the fixed costs included in the unit cost of production, thereby increasing the profitability of production. This growth in profits is due to the so-called "scale effect", that is, the more marketable products are produced, the lower its cost becomes.
In practice, such a concept as semi-fixed costs is also often used. They represent a type of cost that is present during downtime, but their value can be changed depending on the period of time chosen by the enterprise. This type of cost overlaps with indirect or overhead costs that accompany the main production, but are not directly related to it.
Types of variable costs
- Regional
- regressive
- Flexible
Examples of Variable Costs
In accordance with IFRS standards, there are two groups of variable costs: production variable direct costs and production variable indirect costs. Production variable direct costs- these are costs that can be attributed directly to the cost of specific products on the basis of primary accounting data. Production variable indirect costs- these are costs that are directly dependent or almost directly dependent on changes in the volume of activity, however, due to the technological features of production, they cannot be directly attributed or economically impractical to be directly attributed to manufactured products.
Examples of variable direct costs are:
- The cost of raw materials and basic materials;
- Costs for energy, fuel;
- The wages of workers engaged in the production of products, with accruals on it.
Examples of variable indirect costs are the costs of raw materials in complex productions. For example, when processing raw materials - coal - coke, gas, benzene, coal tar, ammonia are produced. When milk is separated, skimmed milk and cream are obtained. In these examples, it is possible to divide the costs of raw materials by types of products only indirectly.
Dependence of cost type on cost object
The concept of direct and indirect costs is conditional.
For example, if the main business is transportation services, then the salaries of drivers and the depreciation of cars will be direct costs, while for other types of business, the maintenance of vehicles and the remuneration of drivers will be indirect costs.
If the cost object is a warehouse, then the storekeeper's salary will be a direct cost, and if the cost object is the cost of manufactured and sold products, then these costs (storekeeper's salary) will be indirect due to the impossibility of unambiguously and the only way attribute it to the cost object - cost. Depending on the volume of products produced, the cost per unit of production will change with the only battery in this system
Properties of Direct Costs
- Direct costs increase in direct proportion to the volume of products produced and are described by a linear function equation in which b=0. If the costs are direct, then in the absence of production they should be equal to zero, the function should start at the point 0 . AT financial models it is allowed to use the coefficient b to reflect minimum wage labor of employees due to downtime due to the fault of the enterprise, etc.
- Linear dependence exists only for a certain range of values. For example, if, with an increase in production volumes, a night shift is introduced, then payment in night shift is higher than the day shift.
Direct and variable costs in legislation
The concept of lines and variable costs present in paragraph 1 of article 318 tax code RF. They are called direct and indirect costs. According to tax legislation, direct expenses, in particular, include:
- expenses for the purchase of raw materials, materials, components, semi-finished products;
- wages of production personnel;
- depreciation on fixed assets.
The company may include in direct costs and other types of costs directly related to the production of products. Direct costs are taken into account when determining the tax base for income tax as products are sold, and indirect costs - as they are implemented.
see also
Notes
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See what "Variable Costs" is in other dictionaries:
Cash and opportunity costs that change in response to changes in output. Typically, variable costs include the costs of wages, fuel, materials, etc. Distinguish proportionally variables, regressively ... ... Financial vocabulary
variable costs- Operating costs that change directly and proportionally with changes in the volume of production or sales, capacity utilization, or other metrics of activity. Examples are materials consumed, direct labor,… …
VARIABLE COSTS- - any costs that change in direct proportion to changes in the level of output. They represent the costs associated with the use of a variable resource: raw materials, labor, etc ... Economics from A to Z: Thematic guide
The costs of the enterprise, proportional to the volume of activity of the enterprise (costs of raw materials and materials, direct labor costs, etc.) ... Glossary of Crisis Management Terms
Variable costs (costs)- (Variable costs, VC) - costs, the value of which varies depending on the change in the volume of production: the cost of raw materials, fuel, energy, wages, etc ... Economic and Mathematical Dictionary
variable costs (costs)- Costs, the value of which varies depending on the change in the volume of production: the cost of raw materials, fuel, energy, wages, etc. Topics economics EN variable costsvc … Technical Translator's Handbook
variable costs step by step- Costs that increase in stages with the growth of the volume of activities. Topics accounting EN step variable cost … Technical Translator's Handbook
variable costs for the production of (electricity or heat) energy- - [A.S. Goldberg. English Russian Energy Dictionary. 2006] Topics energy in general EN variable energy costVEC … Technical Translator's Handbook
variable costs for the production of electricity or heat- - [A.S. Goldberg. English Russian Energy Dictionary. 2006] Topics energy in general EN variable energy cost … Technical Translator's Handbook
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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. AT long term 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 the volume of production increases, the total revenue increases, then the 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.