Fixed and variable costs. Fixed and variable costs

5.1 . What are production costs ?

Production costs is the cost of all resources expended in the production process, expressed in monetary terms.
General costs– expenses for the acquisition of the entire volume of resources that the enterprise uses to organize the production of a certain volume of products.
External resources- this is everything that the company buys from other commercial organizations or citizens.
Internal resources - this is everything that belongs to the company itself and is used by it to organize its activities (premises, equipment, land, cash owner and his entrepreneurial abilities, which could be directed to other purposes).
External (obvious, accounting) costs– expenses for the acquisition of external resources.Domestic (implicit) costs– expenses for the acquisition of internal resources.
Internal costs are equal to the cash payments that could have been received for own resources with their alternative use (the best possible). Thus, one’s own premises could be rented out, and the owner of the company, without receiving a satisfactory income, could receive income in the form of a salary by working for hire.
5.2 . Profit.
Profit– the excess of income from the sale of goods or services over costs.
Revenue– funds received (proceeds) by an enterprise, firm, entrepreneur from the sale of goods and services; distinguish between revenue from the sale of products, revenue from the sale of fixed assets, and trade revenue.
!!! Economicprofit = sales revenue – external costs – internal costs.Accountingprofit = sales revenue – external costs.
5.3 . Fixed and variable costs .
Fixed costs - this is that part of total costs that does not depend on this moment time from the volume of output (rent for the premises, costs of maintaining the building, costs of training and retraining of personnel, costs of public utilities, depreciation).
Depreciation(from Middle-century lat. amortisatio - repayment) - a decrease in the value of capital resources as they wear out during production use.
Variable costs – this is that part of the total costs, the value of which for a given period of time is directly dependent on the volume of production and sales of products (purchase of raw materials, wages, energy, fuel, transport services, costs of containers and packaging, etc.).
Total (total, gross) costs = fixed + variable. Variable costs increase as production volume increases. An entrepreneur can control variable costs. Fixed costs are beyond the control of the company's management, since they are mandatory and must be paid regardless of the volume of production.
5.4 . Effective business .
Effect(from lat. effectys - execution, action, from efficio - I act, perform) - 1) result, consequence of any causes, actions (for example, the effect of treatment); 2) a strong impression made by someone or something; 3) a means, a technique (including in art), the purpose of which is to impress, surprise or create the illusion of something (for example, light and sound effects in the theater); 4) physical phenomenon, e.g. photo effect.
Efficiency– process effectiveness, defined as the ratio of effect, result to costs. In economics, an effect is the result of an activity (for example, an increase in profit received by a company compared to the previous year, or the amount of money saved).
Technological efficiency - the level of organization of production at which the maximum possible amount of products is produced from available resources.
Economic efficiency - a method of organizing production in which the costs of producing a certain amount of products are minimal.
Profitability(from him. rentabel – profitable, profitable) – 1) indicator economic efficiency production, calculated as the ratio of profits to costs or production costs; 2) the ratio of the profit received by an enterprise for a certain period to the costs incurred during the same period.
Profitability = profit / costs.
5.5 . How are costs different from costs? ?

Expenses- This monetary value the cost of material, labor, financial, natural, information and other types of resources for the production and sale of products over a certain period of time. The concept of "costs" is used in economic theory and practice as the concept of “costs” in relation to the production of products (works, services) in general or its individual stages. Some authors consider the concepts of “production costs” and “production costs” to be identical, but this is not true. The concept of “costs” is broader than the concept of “costs”. Costs are a total of various types costs of production and sale of products as a whole or its individual parts. For example, production costs are the costs of material, labor, financial and other types of resources for the production and sale of products. In addition, “costs” include specific types of costs: a single social tax, losses from marriage, warranty repair etc. The concepts of “production costs” and “production costs” can coincide and be considered identical only under certain conditions.

Costs are formed differently depending on the type of resources used in production. Let's consider them using the example of the use of materials and production facilities of an enterprise for the manufacture of washing machines. The more units of production are produced, the more material is consumed, therefore, the costs associated with the use of materials (metal, plastic, rubber) will increase. At the same time, the dimensions of the building and workshops, the volume of equipment do not change, which means that the costs associated with the use of the building and the equipment installed in the workshops may remain the same. Such differences in the use of production resources forced economists to consider such types of costs as fixed and variable.

Fixed costs- this is that part of total costs that does not depend at a given time on the volume of output.

An example of fixed costs could be a company's rent for premises, building maintenance costs, costs of training and retraining of personnel, wage management personnel, utility costs, depreciation.

Depreciation- reduction in the cost of capital resources as they wear out during production use. To compensate for the wear and tear of buildings, equipment, Vehicle funds are accumulated (depreciation deductions), which are used for repairs or production of new means of labor instead of worn-out ones. These deduction amounts are included in fixed expenses.

The company incurs fixed costs even if it does not work. For example, if a bakery temporarily stopped the production of its products, then utilities and management salaries will still require expenses.

Variable costs- this is that part of the total costs, the value of which for a given period of time is directly dependent on the volume of production and sales of products.

Examples of variable costs are the costs of purchasing raw materials, labor, energy, fuel, transportation services, costs of containers and packaging, etc.

Variable costs increase as production volume increases and decrease as production volume decreases.

The differences between fixed and variable costs are significant for every entrepreneur. He can manage variable costs, since their value changes over time. short term time as a result of changes in production volume. Fixed costs are beyond the control of the company's administration, since they are mandatory and must be paid regardless of the volume of production.

Analyzing changes in production costs depending on the volume of output is very important. Only on its basis can one understand how firms make decisions and determine the volume of production of goods and services, as well as set prices for goods offered on the market. Comparing production costs is extremely important for managing a company, determining optimal production sizes and opportunities for generating sustainable income.

So, participants in entrepreneurial activity, striving to make their business effective, have to think about increasing profits and reducing costs. All of the above will help answer one more question: what does an effective business, an effective enterprise (firm) mean? And although the concept of “efficiency” has already been used, let’s try to understand it better.

The concept of “effectiveness” comes from the word “effect”. In economics, an effect is a specific positive result of an activity (for example, an increase in profit received by a company compared to the previous year, or the amount of money saved). Efficiency is determined by comparing the magnitude of the effect and the costs (expenses, expenses) that ensure its receipt.

Efficiency- process effectiveness, defined as the ratio of effect, result to costs. To analyze the efficiency and profitability of an enterprise, an indicator such as profitability is used. Profitability is calculated as the ratio of the profit received by an enterprise for a certain period to the costs incurred during the same period (profitability = profit / costs). Think about what needs to be done to achieve high performance of the company.

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2.5. Fixed and variable costs

Production costs – expenses, monetary expenditures that need to be made to create a product. For an enterprise (firm), they act as payment for acquired factors of production. Economic costs- those payments that the company must make to suppliers of necessary resources (labor, material, energy, etc.) in order to divert these resources from use in other industries. Economic costs are divided into:

1) Internal (or implicit)– opportunity costs of using resources owned by the company itself, i.e. unpaid costs. Implicit costs: cash payments that a company could receive with a more profitable use of its resources for the owner of capital, the profit that he could receive by investing his capital not in this, but in some other business (enterprise).

External (explicit, accounting)– opportunity costs, which take the form cash payments suppliers of production factors and intermediate goods. Explicit costs include: wages to workers, cash costs for the purchase and rental of machines, equipment, buildings, structures, payment transport costs, utility bills, payments to suppliers of material resources, payments for services of banks and insurance companies.

2) Private(if they are examined from the point of view of an individual firm or individual manufacturer) and public(if costs are analyzed from the point of view of society as a whole and externalities arise) costs. Social and private costs coincide only if there are no external effects, or if their total effect is equal to zero.

3) Permanent- part of the total costs, which at a given time does not depend on the volume of output (rent of the company for the premises, costs of maintaining the building, costs of training and retraining of personnel, salaries of management personnel, utility costs, depreciation). All these costs will be typical for all product production cycles.

Variables- part of the total costs, the value of which for a given period of time is directly dependent on the volume of production and sales of products (purchase of raw materials; payment of labor, energy, fuel, transport services; costs of containers and packaging, etc.). Classification of variable costs: a) by the nature of the dependence on the volume of output (proportional, degressive, progressive); b) according to the statistical principle (general, average); c) by the method of attribution to the cost of production (direct, indirect); d) in relation to the production process (production, non-production).

General (gross)– those costs incurred by the enterprise during one stage of production.

4) Non-refundable- in a broad sense, those expenses that the company will not be able to return even if it ceases its activities (for example, the 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.); in a narrow sense, these are costs for those types of resources that have no alternative use (for example, costs for specialized equipment manufactured to order by a company). Total costs represent general expenses firms to pay for all factors of production. Total costs depend on the volume of output and are determined by: quantity; market price of the resources used.

Factors influencing cost and cost reduction

1. Increasing the technical level of production: introduction of new, progressive technology, mechanization and automation production processes; improving the use and application of new types of raw materials and materials; changes in the design and technical characteristics of products; other factors that increase technical level production.

2. Improving the organization of production and labor: changes in the organization of production, forms and methods of labor with the development of production specialization; improving production management and reducing costs; improving the use of fixed assets; improving logistics; reduction of transport costs; other factors that increase the level of organization of production.

3. Changes in the volume and structure of products, which can lead to a relative reduction in semi-fixed costs (except for depreciation), a relative reduction in depreciation charges, a change in the nomenclature and range of products, and an increase in their quality.

4. Improved use natural resources: changes in the composition and quality of raw materials; changes in the productivity of deposits, the volume of preparatory work during extraction, methods of extraction of natural raw materials; changes in other natural conditions.

5. Industry and other factors: commissioning and development of new workshops, production units and production facilities; analysis of reserves for cost reduction as a result of the liquidation of obsolete and commissioning of new workshops and production facilities on a higher technical basis, with better economic indicators.

Measures to reduce fixed costs: reduction of commercial and administrative expenses; the most complete loading of assets; reduction in the volume of consumption of commercial services; sale of unused current and intangible assets.

Measures to reduce variable costs: reduction in the number of employees of the main and auxiliary production due to increased labor productivity; transition from piecework wages to time wages; reduction of stocks of raw materials, materials and finished products; introduction of resource-saving technologies; replacing materials with cheaper ones.

Economic profit– the difference between the firm’s total revenue and economic costs. The excess of cash receipts over the amount of economic costs means that the enterprise has net profit, its existence is justified, it can develop successfully. Accounting profit– the difference between total revenue and accounting costs.

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24. COSTS AND PROFIT Costs (costs) are expenses necessary for the production of goods and services. Costs are the expenses incurred in the process economic activity associated with the production of products or provision of services. Types of costs (costs): constant

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FIXED AND VARIABLE COSTS
Social studies 11th grade Basic level
Codifier for social studies Chapter 2. Economics. Topic 2.5
The presentation was prepared by Olga Valerievna Uleva, teacher of history and social studies, School No. 1353

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COMPANY (enterprise) - commercial organization, acquiring economic resources to produce and sell goods and services for profit. Firms are engaged in collective (organized) entrepreneurship.
ENTERPRISE is an economic agent that owns property, produces goods and services, and has income and expenses.
COLLECTIVE (LLC, JSC)
INDIVIDUAL (IPP, PBOYUL)

Slide 3

The company is a LEGAL ENTITY. SIGNS: must have constituent documents (usually a charter), location and executive body. has separate property (limited property liability, unlike an individual entrepreneur) is liable for its obligations with this property has property rights and obligations can be a plaintiff and defendant in court (as well as an individual) has an independent balance sheet (estimate) and its own current account
ENTITY

Slide 4

COMPANY ECONOMY
THE MAIN FUNCTION OF A FIRM is to produce goods and services to meet consumer demand. FACTORS OF PRODUCTION – resources necessary for the production of goods and services:
LABOR – expedient activity people to create economic benefits. CAPITAL (investment resources) – all the benefits created by a person’s past labor and used for business. Capital also includes raw materials (oil, gas, timber, etc.). LAND – all agricultural and urban land that is used for agriculture or industrial development. INFORMATION – any information necessary for organizing and conducting production. MANAGERIAL (entrepreneurial) abilities - the ability of an employee to use his knowledge to make the best decision in the given circumstances.

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PRODUCTION COSTS -
costs of the manufacturer (firm owner) for the acquisition and use of production factors.
In what case will the company's activities be profitable?

REVENUE FROM SALES OF PRODUCTS
COSTS OF ACQUISITION AND USE OF PRODUCTION FACTORS
REVENUE FROM SALES OF PRODUCTS
COSTS OF ACQUISITION AND USE OF PRODUCTION FACTORS
PROFIT

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PLACE OF PROFIT IN THE STRUCTURE OF PRODUCT COST
PRODUCT COST (REVENUE)
COST LEVEL
PRICE LEVEL
quantity social labor and the time required to produce a given product. Consists of the value of constant capital, the value of variable capital and surplus value.
the amount of money in exchange for which the seller is willing to transfer (sell) a unit of goods. Essentially, price is the rate at which a particular product is exchanged for money.
COST OF GOODS -
THE PRICE OF THE PRODUCT -

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ECONOMIC AND ACCOUNTING COSTS
AN ECONOMIST AND AN ACCOUNTANT COUNT PROFIT DIFFERENTLY

Fixed costs- this is that part of total costs that does not depend at a given time on the volume of output.

An example of fixed costs could be a company's rent for premises, building maintenance costs, costs of training and retraining of personnel, salaries of management personnel, utility costs, and depreciation.

Depreciation- reduction in the cost of capital resources as they wear out during production use. To compensate for the wear and tear of buildings, equipment, and vehicles, funds are accumulated (depreciation deductions), which are used for repairs or production of new labor tools instead of worn-out ones. These deduction amounts are included in fixed expenses.

Variable costs- this is that part of the total costs, the value of which for a given period of time is directly dependent on the volume of production and sales of products.

Examples of variable costs are the costs of purchasing raw materials, labor, energy, fuel, transportation services, costs of containers and packaging, etc.

Variable costs increase as production volume increases and decrease as production volume decreases.

The differences between fixed and variable costs are significant for every entrepreneur. He can manage variable costs, since their value changes over a short period of time as a result of changes in production volume. Fixed costs are beyond the control of the company's administration, since they are mandatory and must be paid regardless of the volume of production.