Costs that depend on the volume of production. Types of production costs

Every business has costs. If they are not there, then there is no product to be put on the market. To produce something, you need to spend money on something. Of course, the lower the costs, the more profitable the business.

However, following this simple rule requires the entrepreneur to take into account a large number of nuances that reflect the variety of factors that affect the success of the company. What are the most remarkable aspects that reveal the essence and varieties of production costs? What determines business efficiency?

A bit of theory

Production costs, according to a common interpretation among Russian economists, are the costs of an enterprise associated with the acquisition of so-called "factors of production" (resources without which it is impossible to produce a product). The lower they are, the more economically profitable the business is.

Production costs are measured, as a rule, in relation to the total cost of the enterprise. In particular, a separate class of expenses may be those associated with the sale of manufactured products. However, it all depends on the methodology used in classifying costs. What are the options here? Among the most common in the Russian marketing school there are two of them: the methodology of the "accounting" type, and the one that is called "economic".

According to the first approach, production costs are the total set of all actual expenses associated with the business (purchase of raw materials, rent of premises, payment of utilities, staff compensation, etc.). "Economic" methodology involves the inclusion of those costs, the value of which is directly related to the lost profits of the company.

In accordance with popular theories, which Russian marketers adhere to, production costs are divided into fixed and variable. Those that belong to the first type, as a rule, do not change (if we talk about short-term time periods) depending on the increase or decrease in the rate of output of the goods.

fixed type costs

Fixed production costs are, most often, such items of expenditure as rent of premises, remuneration of administrative personnel (managers, leaders), obligations to pay certain types of contributions to social funds. If they are presented in the form of a graph, it will be a curve that is directly dependent on the volume of production.

As a rule, business economists calculate the average costs of production from those that are fixed. They are calculated based on the volume of costs per unit of manufactured goods. Usually, as the volume of output of goods increases, the "schedule" of average costs descends. That is, as a rule, the greater the productivity of the factory, the cheaper the unit product.

variable costs

The production costs of the enterprise, which are related to variables, in turn, are very susceptible to changes in the volume of output. These include the cost of purchasing raw materials, paying for electricity, and compensating staff at the level of specialists. It is understandable: more material is needed, energy is wasted, new personnel are needed. A graph showing the dynamics of variable costs is usually unstable. If a company is just starting to produce something, then these costs usually increase more actively in comparison with the rate of increase in production.

But as soon as the factory reaches a sufficiently intensive turnover, then the variable costs, as a rule, do not grow so actively. As in the case of fixed costs, the second type of cost is often calculated as an average - again, relative to the output of a unit of output. The total of fixed and variable costs is the total cost of production. Usually they just add up mathematically when analyzing the economic performance of a company.

Costs and depreciation

Such phenomena as depreciation and the closely related term "wear and tear" are directly related to production costs. Through what mechanisms?

First, let's define what wear is. This, according to the interpretation common among Russian economists, is a decrease in the value of production resources in force. Depreciation can be physical (when, for example, a machine or other equipment simply breaks down or cannot withstand the previous rates of output of goods), or moral (if the means of production used by the enterprise, say, are much inferior in efficiency to those used in competing factories ).

A number of modern economists agree that obsolescence is a fixed cost of production. Physical - variables. The costs associated with maintaining the volume of output of goods, subject to wear and tear of equipment, form the same depreciation charges.

As a rule, this is due to the purchase of new equipment or investments in the repair of the current one. Sometimes - with a change in technological processes (for example, if a machine that produces spokes for wheels fails at a bicycle factory, then their production can be given temporarily or on an indefinite basis to "outsourcing", which, as a rule, increases the cost of production of finished products).

Thus, timely modernization and purchase of high-quality equipment is a factor that significantly affects the reduction of production costs. Newer and more modern technology in many cases involves lower depreciation costs. Sometimes the costs associated with the wear and tear of equipment are also affected by the qualifications of the personnel.

As a rule, more experienced craftsmen handle the technique more carefully than beginners, and therefore it may make sense to invest in inviting expensive, highly qualified specialists (or invest in training young ones). These costs may be lower than the investment in depreciation of equipment heavily exploited by inexperienced newcomers.

2.3.1. Production costs in a market economy.

production costs - It is the monetary cost of acquiring the factors of production used. Most cost effective method production is considered to be the one at which production costs are minimized. Production costs are measured in terms of costs incurred.

production costs - costs that are directly related to the production of goods.

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

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

The task of economists is to choose the most optimal use of factors of production and minimize costs.

Internal (implicit) costs - this is the cash income that the company donates, independently using its own resources, i.e. These are the returns that could be received by the firm for its own use of resources in the best possible way to use them. Opportunity cost is the amount of money needed to divert a particular resource away from the production of good B and use it to produce good A.

Thus, the costs in cash that the company has carried out in favor of suppliers (labor, services, fuel, raw materials) is called external (explicit) costs.

The division of costs into explicit and implicit there are two approaches to understanding the nature of costs.

1. Accounting approach: production costs should include all real, actual costs in cash (wages, rent, opportunity costs, raw materials, fuel, depreciation, social security contributions).

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

short term(SR) - the length of time during which some factors of production are constant, while others are variable.

Constant factors - the total size of buildings, structures, the number of machines and equipment, the number of firms that operate in the industry. Therefore, the possibility of free access of firms in the industry in the short run is limited. Variables - raw materials, the number of workers.

Long term(LR) is the length of time during which all factors of production are variable. Those. during this period, you can change the size of buildings, equipment, the number of firms. In this period, the firm can change all production parameters.

Cost classification

fixed costs (FC) - costs, the value of which in the short term does not change with an increase or decrease in production volume, i.e. they do not depend on the volume of output.

Example: building rent, equipment maintenance, administration salary.

S is the cost.

The fixed cost graph is a straight line parallel to the x-axis.

Average fixed costs (A F C) – fixed costs per unit of output and is determined by the formula: A.F.C. = FC/ Q

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

The graph of average fixed costs is a curve that has a decreasing character, because as the volume of production increases, the total revenue grows, then the average fixed cost is an ever smaller amount that falls on a unit of products.

variable costs (VC) - costs, the value of which varies depending on the increase or decrease in the volume of production, i.e. they depend on the volume of output.

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

The graph is a curve proportional to the volume of output, which has an increasing character. But its nature can change. In the initial period, variable costs grow at a higher rate than the output. As the optimal size of production (Q 1) is reached, there is a relative saving of VC.

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

A graph is a curve that does not start from the origin. The general character of the curve is increasing. The technologically optimal output size is reached when AVCs become minimal (p. Q - 1).

Total Costs (TC or C) - a set of fixed and variable costs of the firm, in connection with the production of products in the short run. They are determined by the formula: TC = FC + VC

Another formula (a function of the volume of production): TS = f (Q).

Depreciation and amortization

Wear is the gradual loss of value by capital resources.

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

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

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

Depreciation deductions:

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

Serves as a source of reproduction of capital goods.

The state legislates depreciation rates, i.e. the percentage of the value of capital goods by which they are considered depreciated in a year. It shows how many years the cost of fixed assets should be reimbursed.

Average total cost (ATC) – the sum of the total costs per unit of production:

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

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

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

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

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

Marginal cost measures how much it will cost a firm to increase output per unit. They decisively influence the choice of the volume of production by the firm, since. this is exactly the indicator that the firm can influence.

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

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

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

For the decision of the company, the most important characteristic is the average values, the average fixed costs fall as the volume of production increases.

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

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

TB is the level of physical volume of sales over the estimated period of time at which the proceeds from the sale of products coincide with production costs.

Point A - TB, where revenue (TR) = TS

Restrictions that must be observed when calculating TB

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

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

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

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

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

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

Law: with an increase in the use of one factor of production, while the rest remain unchanged, sooner or later a point is reached, starting from which the additional use of variable factors leads to a decrease in the increase in production.

The action of this law assumes the immutability of the state of technically and technologically production. And so technological progress can change the scope of this law.

The long run is characterized by the fact that the firm is able to change all the factors of production used. In this period variable character of all applied factors of production allows the firm to use the most optimal options for their combination. This will be reflected in the magnitude and dynamics of average costs (costs per unit of output). If the company decided to increase the volume of production, but at the initial stage (ATS) will first decrease, and then, when more and more new capacities are involved in production, they will begin to increase.

The graph of long-term total costs shows seven different options (1 - 7) for the behavior of ATS in the short term, since The long run is the sum of the short runs.

The long run cost curve consists of options called growth steps. In each stage (I - III) the firm operates in the short run. The dynamics of the long-run cost curve can be explained using scale effect. Change by the firm of the parameters of its activities, i.e. the transition from one version of the size of the enterprise to another is called change in the scale of production.

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

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

III - long-term ATS with an increase in output grow and there is a loss from the increase in the scale of production or negative scale effect(from Q 2 to Q 3).

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

SP = TR –TS

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

TR = P* Q

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

Average revenue is equal to the market price:

AR = TR/ Q = PQ/ Q = P

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

MR = ∆ TR/∆ Q = ∆(PQ) /∆ Q =∆ P

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

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

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

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

If we subtract internal costs from accounting profit, we get economic profit.

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

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

economic profit(net) - its presence means that resources are used more efficiently at this enterprise.

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

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

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

A firm's costs are the sum of all the costs of producing a product or service expressed in monetary terms. In Russian practice, they are often called the cost. Each organization, regardless of what type of activity it is engaged in, has certain costs. A firm's costs are the amounts it pays for advertising, raw materials, rent, labor, and so on. Many managers try to ensure the efficient operation of the enterprise at the lowest possible cost.

Consider the basic classification of the costs of the firm. They are divided into constants and variables. Costs can be considered in the short run, and the long run eventually makes all costs variable, since during this time some large projects can end and others begin.

The costs of the firm in the short run can be clearly divided into fixed and variable. The first type includes costs that do not depend on the volume of production. For example, deductions for depreciation of structures, buildings, insurance premiums, rent, salaries of managers and other employees related to top management, etc. A firm's fixed costs are obligatory costs that an organization pays even when there is no production. On the contrary, they directly depend on the activity of the enterprise. If production volumes increase, then costs increase. These include the cost of fuel, raw materials, energy, transportation services, the wages of most of the company's employees, etc.

Why should a businessman divide costs into fixed and variable? This moment affects the functioning of the enterprise in general. Since variable costs can be controlled, the manager can reduce costs by changing the volume of production. And since the overall costs of the enterprise decrease as a result, the profitability of the organization as a whole increases.

In economics, there is such a thing as opportunity cost. They are related to the fact that all resources are limited, and the company has to choose one way or another to use them. The opportunity cost is lost profit. The management of the enterprise, in order to receive one income, deliberately refuses to receive other profits.

Opportunity costs of the firm are divided into explicit and implicit. The first are those payments that the firm would pay to suppliers for raw materials, for additional rent, and so on. That is, their organization can assume in advance. This includes cash costs for renting or purchasing machines, buildings, machines, hourly wages of workers, payment for raw materials, components, semi-finished products, etc.

The implicit costs of the firm belong to the organization itself. These cost items are not paid to third parties. This also includes profits that could be obtained on more favorable terms. For example, the income that an entrepreneur can receive if he works elsewhere. Implicit costs include rent payments for land, interest on capital invested in securities, etc. Every person has this kind of expenses. Consider an ordinary factory worker. This person sells his time for a fee, but he could get a higher salary in another organization.

So, in a market economy, it is necessary to strictly monitor the expenses of the organization, it is required to create new technologies, train employees. This will help improve production and plan costs more efficiently. So, it will lead to an increase in the income of the enterprise.

(to simplify, measured in monetary terms), used in the course of the enterprise's business activities at (for) a certain time stage. Often in everyday life, people confuse these concepts (costs, costs and expenses) with the purchase price of a resource, although such a case is also possible. Costs, costs and expenses have historically not been separated in Russian. In Soviet times, economics was an "enemy" science, so there was no significant further development in this direction, except for the so-called. "Soviet economy".

In world practice, there are two main schools of understanding costs. This is a classic Anglo-American, which includes both Russian and continental, which rests on German developments. The continental approach structures the content of costs in more detail and therefore is becoming more common all over the world creating a qualitative basis for tax, accounting and management accounting, costing, financial planning and controlling.

cost theory

Clarifying the definition of concepts

To the above definition, more clarifying and delimiting definitions of concepts can be added. According to the continental definition of the movement of value flows at different levels of liquidity and between different levels of liquidity, we can make the following distinction between the concepts for negative and positive value flows of organizations:

In economics, there are four main levels of value flows in relation to liquidity (in the image from bottom to top):

1. Equity level(cash, highly liquid funds (checks ..), operational settlement accounts in banks)

payments and payments

2. Level of money capital(1. Level + accounts receivable - accounts payable)

Movement at a given level is determined costs and (financial) receipts

3. Production capital level(2. Level + production necessary subject capital (material and non-material (for example, a patent)))

Movement at a given level is determined costs and production income

4. Net worth level(3. Level + other subject capital (tangible and non-material (for example, accounting program)))

Movement at a given level is determined expenses and income

Instead of the level of net capital, you can use the concept total capital level, if we take into account other non-subject capital (for example, the company's image ..)

The movement of values between levels is usually carried out at all levels at once. But there are exceptions when only a few levels are covered, and not all. They are numbered in the picture.

I. Exceptions in the movement of value flows of levels 1 and 2 due to credit transactions (financial delays):

4) payments, not costs: repayment of credit debt (= "partial" loan repayment (NAMI))

1) costs, not payments: the appearance of credit debt (= the appearance (of US) of a debt to other participants)

6) payments, non-receipt: input of receivables (= "partial" repayment of debt by other participants for a product / service sold (by NAMI)

2) receipts, not payments: the appearance of receivables (=provision (by NAMI) of installments to pay for the product / service to other participants)

II. Exceptions in the movement of value flows of levels 2 and 4 are due to warehouse operations (material delays):

10) costs, not costs: payment for credited materials that are still in stock (= payment (by NAMI) on debit regarding "stale" materials or products)

3) expenses, not expenses: issuance of unpaid materials from the warehouse (in (OUR) production)

11) receipts, not income: pre-payment for subsequent delivery (of (OUR) "future" product by other participants)

5) revenues, non-revenues: the launch of a self-produced plant (="indirect" future revenues will create an inflow of value for this plant)

III. Exceptions in the movement of value flows of levels 3 and 4 are due to the asynchrony between the intra-periodic and inter-periodic production (main) activities of the enterprise and the difference between the main and associated activities of the enterprise:

7) expenses, not expenses: neutral expenses (= expenses of other periods, non-production expenses and extraordinarily high expenses)

9) costs, not costs: calculation costs (=write-offs, interest on equity, renting out the company's own real estate, owner's salary and risks)

8) income, non-productive income: neutral income (=income of other periods, non-productive income and unusually high income)

It was not possible to find production incomes that would not be incomes.

financial balance

Foundation of financial balance Any organization can be simplified to name the following three postulates:

1) In the short term: superiority (or compliance) of payments over payments.
2) In the medium term: the superiority (or matching) of income over costs.
3) In the long run: the superiority (or matching) of income over expenses.

Costs are the "core" of costs (the organization's main negative value stream). Production (basic) income can be attributed to the "core" of income (the main positive value stream of the organization), based on the concept of specialization (division of labor) of organizations in one or more types of activities in society or the economy.

Cost types

Third-party company services
Other

More detailed cost structuring is also possible.

Cost types

Influence on the cost of the final product
- indirect costs
According to the relationship with the loading of production capacities
Relative to the production process
- Production costs
- Non-manufacturing costs
By constancy in time
- time-fixed costs
- episodic costs over time
By type of cost accounting
- accounting costs
- calculator costs
By subdivisional proximity to manufactured products
- overhead costs
- general business expenses
By importance to product groups
- group A costs
- group B costs
In terms of importance to manufactured products
- product 1 costs
- product 2 costs

Importance for decision making
- relevant costs
- irrelevant costs
By disposability
- avoidable costs
- fatal costs
Adjustability
- adjustable
- unregulated costs
Possible return
- return costs
- sunk costs
By behavior of costs
- incremental costs
- marginal (marginal) costs
Cost to quality ratio
- corrective action costs
- preventive action costs

Sources

Kistner K.-P., Steven M.: Betriebswirtschaftlehre im Grundstudium II, Physica-Verlag Heidelberg, 1997

COSTS- the costs expressed in monetary form, due to the expenditure of various types of economic resources (raw materials, materials, labor, fixed assets, services, financial resources) in the process of production and circulation of products, goods. General I. usually ... ... Legal Encyclopedia

Firm. Production costs and their types.

Parameter name	Meaning
Article subject:	Firm. Production costs and their types.
Rubric (thematic category)	Production

Firm(enterprise) is an economic link that realizes its own interests through the manufacture and sale of goods and services through the systematic combination of production factors.

All firms can be classified according to two main criteria: the form of ownership of capital and the degree of concentration of capital. In other words: who owns the firm and what is its size. According to these two criteria, various organizational and economic forms of entrepreneurial activity are distinguished. This includes state and private (sole, partnerships, joint-stock) enterprises. According to the degree of concentration of production, small (up to 100 people), medium (up to 500 people) and large (more than 500 people) enterprises are distinguished.

Determining the size and cost structure of an enterprise (firm) for the production of products that would provide the enterprise with a stable (equilibrium) position and prosperity in the market is the most important task of economic activity at the micro level.

production costs - these are expenses, cash expenditures that are extremely important to carry out to create a product. For an enterprise (firm), they act as payment for the acquired factors of production.

Most of the cost of production is the use of production resources. If the latter are used in one place, they cannot be used in another, as they have such properties as rarity and limitedness. For example, the money spent on the purchase of a blast furnace for the production of pig iron cannot be simultaneously spent on the production of ice cream. As a result, using some resource in a certain way, we lose the opportunity to use this resource in some other way.

By virtue of this circumstance, any decision to produce something makes it extremely important not to use the same resources for the production of some other types of products. Thus, costs are opportunity costs.

opportunity cost- this is the cost of producing a good, estimated in terms of the lost opportunity to use the same resources for other purposes.

From an economic point of view, opportunity costs can be divided into two groups: ʼʼexplicitʼʼ and ʼʼimplicitʼʼ.

Explicit costs are opportunity costs that take the form of cash payments to suppliers of factors of production and intermediate products.

Explicit costs include: wages of workers (cash payment to workers as suppliers of the factor of production - labor); cash costs for the purchase or payment for the lease of machine tools, machinery, equipment, buildings, structures (monetary payment to suppliers of capital); payment of transport costs; utility bills (electricity, gas, water); payment for services of banks, insurance companies; payment of suppliers of material resources (raw materials, semi-finished products, components).

Implicit costs - is the opportunity cost of using resources owned by the firm itself, ᴛ.ᴇ. unpaid expenses.

Implicit costs are presented as:

1. Cash payments that the firm could receive with a more profitable use of its resources. This can also include lost profits (ʼʼopportunity costsʼʼ); the wages that an entrepreneur could have earned by working elsewhere; interest on capital invested in securities; land rents.

2. Normal profit as the minimum remuneration to the entrepreneur, keeping him in the chosen branch of activity.

For example, an entrepreneur engaged in the production of fountain pens considers it sufficient for himself to receive a normal profit of 15% of the invested capital. And if the production of fountain pens gives the entrepreneur less than a normal profit, he will transfer his capital to industries that give at least a normal profit.

3. It is important to note that for the owner of capital, implicit costs are the profit that he could receive by investing his capital not in this, but in some other business (enterprise). For a peasant - the owner of the land - such implicit costs will be the rent that he could receive by renting out his land. For an entrepreneur (including a person engaged in ordinary labor activity), the implicit costs will be the salary that he could receive for the same time, working for hire at any firm or enterprise.

Τᴀᴋᴎᴍ ᴏϬᴩᴀᴈᴏᴍ, Western economic theory includes the entrepreneur's income in production costs. At the same time, such income is perceived as a payment for risk, which rewards the entrepreneur and encourages him to keep his financial assets within the limits of this enterprise and not divert them for other purposes.

Production costs, including normal or average profit, are economic costs.

Economic or opportunity costs in modern theory consider the costs of the company, carried out in the conditions of making the best economic decision on the use of resources. This is the ideal to which the firm should strive. Of course, the real picture of the formation of general (gross) costs is somewhat different, since any ideal is difficult to achieve.

It must be said that economic costs are not equivalent to those with which accounting operates. AT accounting costs the profit of the entrepreneur is not included at all.

Production costs, which are operated by economic theory, in comparison with accounting, are distinguished by the assessment of internal costs. The latter are associated with the costs that are incurred due to the use of own products in the production process. For example, part of the grown crop is used for sowing the company's land areas. The company uses such grain for internal needs and does not pay for it.

In accounting, internal costs are accounted for at cost. But from the standpoint of the formation of the price of the released goods, such costs should be estimated at the market price of that resource.

Internal costs - it is associated with the use of its own products, which turns into a resource for the further production of the company.

External costs - it is the expenditure of money that is realized to acquire resources that are the property of those who do not belong to the owners of the firm.

Production costs that are realized in the production of goods can be classified not only depending on what resources are used, whether it is the resources of the firm or the resources that had to be paid for. Another classification of costs is also possible.

Fixed, variable and total costs

The costs that a firm incurs in producing a given volume of output depend on the possibility of changing the amount of all resources employed.

fixed costs(FC, fixed costs) are costs that do not depend in the short run on how much the firm produces. Οʜᴎ represent the costs of its fixed factors of production.

Fixed costs are associated with the very existence of the firm's production equipment and must be paid for in connection with this, even if the firm does not produce anything. A firm can only avoid the costs of its fixed factors of production by completely shutting down its operations.

variable costs(VS, variable costs) These are costs that depend on the volume of output of the firm. Οʜᴎ represent the costs of the firm's variable factors of production.

These include the cost of raw materials, fuel, energy, transport services, etc. Most of the variable costs, as a rule, account for the costs of labor and materials. Since the costs of variable factors increase with the growth of output, the variable costs also increase with the growth of output.

General (gross) costs per produced quantity of goods - these are all the costs at a given point in time necessary for the production of a particular product.

In order to more clearly define the possible volumes of production at which the firm guarantees itself against an excessive increase in production costs, the dynamics of average costs is studied.

Distinguish between average constants (A.F.C.). average variables (AVC) PI averages overall (ATS) costs.

Average fixed costs (AFS) is the ratio of fixed costs (FC) to the output:

AFC=FC/Q.

Average variable costs (AVQ are the ratio of variable costs (VC) to the output:

AVC=VC/Q.

Average total cost (ATS) are the ratios of total costs (TC)

to the output:

ATS= TC/Q=AVC+AFC,

as TS= VC+FC.

Average cost is used to decide whether to produce a given product at all. In particular, if the price, which is the average income per unit of output, is less than AVC, then the firm will reduce its losses by suspending its activities in the short run. If the price is lower ATS, then the firm receives a negative economic; profit and should consider final closure. Graphically, this position should be depicted as follows.

If the average cost is below the market price, then the firm can operate profitably.

To understand whether it is profitable to produce an additional unit of output, it is extremely important to compare the resulting change in income with the marginal cost of production.

marginal cost(MS, marginal costs) - is the cost of producing an additional unit of output.

In other words, marginal cost is the increase TS, a firm must go to ĸᴏᴛᴏᴩᴏᴇ to produce another unit of output:

MS= Changes in TS/ Changes in Q (MS = TC/Q).

The concept of marginal cost is of strategic importance because it defines costs that the firm can directly control.

The point of equilibrium of the firm and maximum profit is reached in the case of equality of marginal revenue and marginal cost.

When the firm has reached this ratio, it will no longer increase production, output will become stable, hence the name - the equilibrium of the firm.

Firm. Production costs and their types. - concept and types. Classification and features of the category "Firm. Production costs and their types." 2017, 2018.

Costs that depend on the volume of production. Types of production costs

A bit of theory

fixed type costs

variable costs

Costs and depreciation

2.3.1. Production costs in a market economy.

cost theory

Clarifying the definition of concepts

financial balance

Cost types

Cost types

Sources

See also

See what "Costs" are in other dictionaries: