Business plan fixed and variable costs examples. Variable costs: example. Types of production costs. Share of fixed costs

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Constant costs include costs that do not depend on the volume of output, while variable costs include those whose size is determined by the volume of output, and is usually proportional to it.

The above costs can be divided into fixed and variable costs as follows.

Permanent:

1. Depreciation of equipment, the costs of its current and major repairs are constant costs that do not depend on how many products the enterprise produces, since equipment wears out in any case;

2. General shop and plant expenses are constant, since they do not depend on whether the enterprise produces products or not (in any case, it will be necessary to allocate funds to pay rental payments, wages employees and specialists, and so on).

Note: despite the fact that the rate of production costs is given per unit of production, in terms of economic content this item of expenditure is constant;

Variables:

1. The costs of raw materials, basic materials, purchased semi-finished products and components, as well as auxiliary materials are considered variable, since the more products an enterprise produces, the more raw materials and supplies are consumed;

2. Fuel and energy costs are variable because they are determined by whether the equipment producing the product is running or not;

3. The wages of workers and other items calculated on its basis (additional wages of production workers, deductions) are variable, since piece workers are paid for the products produced;

4. We consider the costs of spare parts for equipment and fast-wearing tools to be variable, since with a larger production output, the wear of parts directly acting on production parts occurs faster;

5. Payment for communication services, mail and transport for commercial purposes depends to a certain extent on the volume of products produced (with a larger volume, more consumers are needed, and these cost items increase accordingly), therefore they are classified as variables.

Table 7.3 - Fixed, variable costs

Cost item	Amount, rub.
Fixed costs
Depreciation	24 794,00
Maintenance	28 217,50
Major renovation	8 465,25
Workshop overhead costs	2 399 171,54
Factory overhead	11 696 521,61
Total	14 157 169,90
Variable costs
Raw materials, basic materials, purchased semi-finished products and components	427 501 434,40
Auxiliary materials	27 929 380,40
Fuel for technological purposes	771 676,00
Energy for technological purposes	1 014 466,30
Basic salary of production workers	9 197 206,47
Additional salary for production workers	6 285 415,64
Accruals and deductions for wages	6 167 441,84
Costs of spare parts for equipment	11 531 568,00
Tooling costs	934 992,00
Business expenses	419 750,00
Total	491 753 331,10

Fixed costs are:

14 157 169,90 * 100% / 505 910 500,95 = 2,8%

Variable costs are:

491 753 331,10 * 100% / 505 910 500,95 = 97,2%

Pricing

To carry out the above process, as well as manage it, cost sharing plays a fairly important role. The dynamics of their changes with fluctuations in production volumes allows us to distinguish two categories: variable and fixed costs.

Variable costs

This concept represents expense items, the volume of which directly depends on the number of products produced. From an economic point of view, such a category can be considered as the entire totality of costs for the real activities of an enterprise. This allows us to most fully highlight the goals that contributed to the creation of the enterprise and determined the directions of its development. Consequently, the larger the production volume, the more significant part must be allocated to variable costs. This category traditionally includes expenses for the purchase of materials and raw materials, components and spare parts, electricity and fuel resources, as well as contributions to social insurance funds and employee wages.

These are expenses, the volume of which does not depend on the number of products produced. Nevertheless, we can talk about the invariability of this value only when considering certain scales production activities. From an economic point of view this type costs are responsible for the most optimal conditions for the enterprise. Fixed costs are objectively existing even during those periods of time when the organization does not produce any products. A change in this category of costs is possible only if there are any changes in the production process itself. Such a condition may include the purchase of new equipment, the construction of new and additional buildings and structures, as well as price changes. Fixed costs traditionally include salaries of the administration and management staff, as well as contributions to social insurance funds, costs of operating and maintaining the proper condition of buildings, structures and structures, maintenance and repair of equipment, etc.

Mixed costs

This category is not one of the main ones, but it is quite common in both small and large enterprises. This, as the name suggests, includes both fixed and variable costs. The simplest and clear example costs of this kind - payment of bills for telephone calls. In this case, elements of both the first and second categories may be present. Thus, the subscription fee belongs to the group of “fixed costs”, but bills for long-distance communication belong to the group of “variable costs”.

What is this for?

The division of enterprise expenses into the two classes described above is important and necessary, since in market conditions there is frequent change market conditions, which may lead to an expansion or, conversely, a reduction in production volumes. Fluctuations in the scale of production directly affect variable and fixed costs, which in turn affect the pricing process, and therefore profits.

Cost price- the initial cost of the costs incurred by the enterprise for the production of a unit of product.

Price- the monetary equivalent of all types of costs including some types of variable costs.

Price- the market equivalent of the generally accepted cost of the product offered.

Production costs- these are expenses, monetary expenditures that must be made to create. For (the company) they act as payment for purchased goods.

Private and public costs

Costs can be viewed from different perspectives. If they are examined from the point of view of an individual firm (individual producer), we are talking about private costs. If costs are analyzed from the point of view of society as a whole, then, as a consequence, there arises the need to take into account social costs.

Let us clarify the concept of external effects. In market conditions, there arise between seller and buyer special relationship purchase and sale. At the same time, relationships arise that are not mediated by the commodity form, but have a direct impact on people’s well-being (positive and negative external effects). An example of positive external effects is expenses for R&D or training of specialists; an example of a negative external effect is compensation for damage from environmental pollution.

Social and private costs coincide only if there are no external effects, or if their total effect is equal to zero.

Social costs = Private costs + Externalities

Fixed Variables and Total Costs

Fixed costs- this is a type of cost that an enterprise incurs within one. Determined by the enterprise independently. All these costs will be typical for all product production cycles.

Variable costs- these are types of costs that are transferred to the finished product in full.

General costs- those costs incurred by the enterprise during one stage of production.

General = Constants + Variables

Opportunity Cost

Accounting and economic costs

Accounting costs- this is the cost of the resources used by the company in the actual prices of their acquisition.

Accounting costs = Explicit costs

Economic costs- this is the cost of other benefits (goods and services) that could be obtained with the most profitable possible alternative use of these resources.

Opportunity (economic) costs = Explicit costs + Implicit costs

These two types of costs (accounting and economic) may or may not coincide with each other.

If resources are purchased freely competitive market, then the actual equilibrium market price paid for their acquisition is the price best alternative(if this were not so, the resource would go to another buyer).

If resource prices are not equal to equilibrium due to market imperfections or government intervention, then actual prices may not reflect the cost of the best rejected alternative and may be higher or lower than opportunity costs.

Explicit and implicit costs

From the division of costs into alternative and accounting costs follows the classification of costs into explicit and implicit.

Explicit costs are determined by the amount of expenses for paying for external resources, i.e. resources not owned by the firm. For example, raw materials, materials, fuel, labor, etc. Implicit costs are determined by the cost internal resources, i.e. resources owned by the firm.

An example of an implicit cost for an entrepreneur would be the salary that he could receive as an employee. For the owner of capital property (machinery, equipment, buildings, etc.), previously incurred expenses for its acquisition cannot be attributed to the explicit costs of the present period. However, the owner incurs implicit costs, since he could sell this property and put the proceeds in the bank at interest, or rent it out to a third party and receive income.

Implicit costs, which are part of economic costs, should always be taken into account when making current decisions.

Explicit costs- This opportunity cost, which take the form of cash payments to suppliers of factors of production and intermediate goods.

Explicit costs include:

workers' wages
cash costs for the purchase and rental of machines, equipment, buildings, structures
payment of transportation costs
communal payments
payment to suppliers of material resources
payment for services of banks, insurance companies

Implicit costs- these are the opportunity costs of using resources owned by the company itself, i.e. unpaid expenses.

Implicit costs can be represented as:

cash payments that a company could receive if it uses its assets more profitably
for the owner of capital, implicit costs are the profit that he could have received by investing his capital not in this, but in some other business (enterprise)

Returnable and sunk costs

Sunk costs are considered in a broad and narrow sense.

In a broad sense, sunk costs include those expenses that a company cannot return even if it ceases its activities (for example, costs of registering a company and obtaining a license, preparing an advertising sign or company name on the wall of a building, making seals, etc. .). Sunk costs are like a company's payment for entering or leaving the market.

In the narrow sense of the word sunk costs are the costs of those types of resources that have no alternative use. For example, the costs of specialized equipment manufactured to order from the company. Since the equipment has no alternative use, its opportunity cost is zero.

Sunk costs are not included in opportunity costs and do not influence the firm's current decisions.

Fixed costs

IN short term Some inputs remain the same and some change to increase or decrease total output.

According to this economic costs short-term period are divided into fixed and variable costs. In the long run, this division becomes meaningless, since all costs can change (that is, they are variable).

Fixed costs- These are costs that do not depend in the short term on how much the firm produces. They represent the costs of its constant factors of production.

Fixed costs include:

payment of interest on bank loans;
depreciation deductions;
payment of interest on bonds;
salary of management personnel;
rent;
insurance payments;

Variable costs

Variable costs- These are costs that depend on the volume of production of the company. They represent the costs of the firm's variable factors of production.

Variable costs include:

fare
electricity costs
raw materials costs

From the graph we see that the wavy line depicting variable costs rises with increasing production volume.

This means that as production increases, variable costs increase:

General (gross) costs

General (gross) costs- these are all the costs for this moment time required for a particular product.

Total costs (total cost) represent the firm's total expenses for paying for all factors of production.

Total costs depend on the volume of output and are determined by:

quantity;
market price of the resources used.

The relationship between the volume of output and the volume of total costs can be represented as a cost function:

which is the inverse function of the production function.

Classification of total costs

Total costs are divided into:

total fixed costs(!!TFC??, total fixed cost) - the company’s total costs for all fixed factors of production.

total variable costs(, total variabl cost) - the company’s total expenses on variable factors of production.

Thus,

At zero output (when the firm is just starting production or has already ceased operations), TVC = 0, and, therefore, total costs coincide with total fixed costs.

Graphically, the relationship between total, fixed and variable costs can be depicted, similar to how it is shown in the figure.

Graphical representation of costs

U- figurative form short-term curves ATC, AVC and MC is an economic pattern and reflects law of diminishing returns, according to which additional use of a variable resource with a constant amount of a constant resource leads, starting from a certain point in time, to a reduction in marginal returns, or marginal product.

As has already been proven above, marginal product and marginal cost are inversely related, and, therefore, this law diminishing marginal product can be interpreted as the law of increasing marginal cost. In other words, this means that starting at some point in time, additional use of a variable resource leads to an increase in marginal and average variable costs, as shown in Fig. 2.3.

Rice. 2.3. Average and marginal costs of production

The marginal cost curve MC always intersects the lines of average (ATC) and average variable costs (AVC) at their minimum points, just as average product curve AP always intersects the marginal product curve MP at its maximum point. Let's prove it.

Average total costs ATC=TC/Q.

Marginal cost MS=dTC/dQ.

Let us take the derivative of average total costs with respect to Q and obtain

Thus:

if MC > ATC, then (ATS)" > 0, and the average total cost curve of ATC increases;
if MS< AТС, то (АТС)" <0 , и кривая АТС убывает;
if MC = ATC, then (ATS)"=0, i.e. the function is at the extremum point, in this case at the minimum point.

In a similar way, you can prove the relationship between average variable costs (AVC) and marginal costs (MC) on the graph.

Costs and price: four models of firm development

Analysis of the profitability of individual enterprises in the short term allows us to distinguish four models of development of an individual company, depending on the ratio of the market price and its average costs:

1. If the firm’s average total costs are equal to the market price, i.e.

ATS=P,

then the firm earns “normal” profits, or zero economic profit.

Graphically this situation is depicted in Fig. 2.4.

Rice. 2.4. Normal profit

2. If favorable market conditions and high demand increase the market price so that

ATC< P

then the company receives positive economic profit, as shown in Figure 2.5.

Rice. 2.5. Positive economic profit

3. If the market price corresponds to the minimum average variable cost of the firm,

then the enterprise is located at the limit of expediency continuation of production. Graphically, a similar situation is shown in Figure 2.6.

Rice. 2.6. A firm at its limit

4. And finally, if market conditions are such that the price does not cover even the minimum level of average variable costs,

AVC>P,

It is advisable for the company to close its production, since in this case the losses will be less than if the production activity continues (more on this in the topic “Perfect competition”).

Of great importance in choosing an accounting and costing system is the grouping of costs in relation to production volume. Based on this criterion, costs are divided into fixed and variable.

Variables are costs whose value changes with changes in production volume. These include the costs of raw materials and materials, fuel and energy for technological purposes, wages of production workers, etc.

Constant costs include costs whose value does not change or changes slightly with changes in production volume. These include general business expenses, etc.

Some costs are called mixed because they have both variable and fixed components. These are sometimes called semi-variable and semi-fixed costs. All direct costs are variable costs, and general production, general and commercial expenses contain both variable and fixed cost components. For example, a monthly telephone fee includes a constant amount of the subscription fee and a variable part, which depends on the number and duration of long-distance and international telephone calls. Therefore, when accounting for costs, they must be clearly distinguished between fixed and variable costs.

The division of costs into fixed and variable is of great importance for planning, accounting and analysis of product costs. Fixed costs, while remaining relatively unchanged in absolute value, with an increase in production become an important factor in reducing the cost of goods, since their value decreases per unit of goods. When managing fixed costs, it should be borne in mind that their high level is determined to a large extent by industry characteristics, which determine different levels of capital intensity of products, differentiation of the level of mechanization and automation. In addition, fixed costs are less amenable to rapid change. Despite objective limitations, every enterprise has opportunities to reduce the amount and share of fixed costs. Such reserves include: reduction of administrative and management costs in the event of unfavorable commodity market conditions; sale of unused equipment and intangible assets; use of leasing and rental of equipment; reduction of utility bills, etc.

Variable costs increase in direct proportion to the growth of production, but calculated per unit of production, they represent a constant value. When managing variable costs, the main task is to save them. Savings on these costs can be achieved through the implementation of organizational and technical measures that ensure their reduction per unit of output - increasing labor productivity and thereby reducing the number of production workers; reduction of inventories of raw materials, supplies and finished products during periods of unfavorable market conditions. In addition, this grouping of costs can be used in analyzing and forecasting break-even production and, ultimately, in choosing the economic policy of an enterprise.

Fixed costs do not depend on the size of production. Their value is unchanged because they are connected with the very existence of the enterprise and must be paid even if the enterprise does not produce anything. These include: rent, costs of maintaining management personnel, depreciation charges for buildings and structures. These costs are sometimes called indirect or overhead.

Variable costs depend on the quantity of products produced, since they consist of the costs of raw materials, materials, labor, energy and other consumable production resources.

The division of costs into fixed and variable is the basis of a method that is widespread in economics. It was first proposed in 1930 by engineer Walter Rautenstrauch as a planning method known as the critical production schedule or break-even schedule (Fig. 19).

The break-even chart in its various modifications is widely used in modern economics. The undoubted advantage of this method is that with its help you can quickly obtain a fairly accurate forecast of the main performance indicators of an enterprise when market conditions change.

When constructing a break-even schedule, it is assumed that there are no changes in prices for raw materials and products during the period for which planning is carried out; fixed costs are considered constant over a limited range of sales volumes; variable costs per unit of output do not change as sales volume changes; sales are carried out quite evenly.

When plotting a graph, the horizontal axis shows the volume of production in units of products or as a percentage of production capacity utilization, and the vertical axis shows production costs and income. Costs are deferred and divided into fixed (POI) and variable (PI). In addition to the lines of fixed and variable costs, the graph displays gross costs (VI) and revenue from sales of products (VR).

The point of intersection of the revenue and gross cost lines represents the break-even point (K). This point is interesting because with the corresponding volume of production and sales (V kr), the enterprise has neither profit nor loss. The production volume corresponding to the break-even point is called critical. When the production volume is less than critical, the enterprise cannot cover its costs with its revenue and, therefore, the result of its activities is losses. If the volume of production and sales exceeds the critical level, the enterprise makes a profit.

The break-even point can be determined and analytical method.

Revenue from product sales is determined by the expression

Where POI– fixed costs; PI – variable costs; P- profit.

If we take into account that at the break-even point profit is zero, then the point of critical production volume can be found using the formula

Sales revenue is the product of sales volume and product price. The total amount of variable costs can be calculated as the product of variable costs per unit of production and the volume of production corresponding to sales volume. Since at the break-even point the volume of production (sales) is equal to the critical volume, the previous formula takes the following form:

Where C– unit price; SPI– variable costs per unit of production; IN cr- critical release.

Using break-even analysis, you can not only calculate the critical production volume, but also the volume at which the planned (target) profit can be obtained. This method allows you to choose the best option when comparing several technologies, etc.

The benefits of dividing costs into fixed and variable parts are used by many modern enterprises. Along with this, cost accounting at full cost and their corresponding grouping are widely used.

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