Margin expenses. Marginal profit

One of the methods of planning and costing that meets the requirements management accounting and allowing you to make economically sound decisions is the marginal method of cost accounting. In the economic literature, this method is sometimes identified with a simple Direct Costing system.

The marginal cost method is based on dividing the costs of production and sales of products into a fixed and variable part.

Marginal costs are recognized as direct variable costs of an enterprise that are directly dependent on the volume of production and sales of products (works, services). In this regard, the cost of production is taken into account and planned only in terms of variable costs. The main advantage of this system is that the calculation of “limited” cost makes it possible to simplify accounting and control of costs, making it more transparent by reducing the number of elementary expenditure items.

Marginal costs are intended to determine marginal profit, which is an important indicator in the system for analyzing sales and production reserves. The contribution margin approach gives managers useful information for planning and decision making.

The most relevant application this method at enterprises to formulate an optimal production plan: optimizing the range of products, determining the degree of profitability of a nomenclature position and stopping the production of an unprofitable segment. When the equipment is fully loaded in a multi-product production environment, the calculation of the production program should be carried out taking into account the maximization of operating profit, which is influenced by the number of units sold and the marginal income per unit of production. Marginal income is the excess of revenue over variable costs.

Contribution margin corresponds to the cost intended to cover fixed costs and generate a profit.

With a stable, balanced business, there are always production and sales reserves, the realization of the potential of which requires an assessment of the possible economic effect obtained. Within the boundaries of a constant level of conditionally constant indirect costs with quite noticeable fluctuations in the output of a product item, the change in marginal profit is determined easily and reliably, using the cost calculated on the basis of variable marginal costs.

The calculation of the increase in marginal profit for a product item is calculated according to the mathematical equation:

Formula for increasing marginal profit by product item

Marginal cost is calculated as the amount by which the cost of products will change when the level of activity changes in the case of calculating costs based on the application of the variable cost method.

The use of this method can be illustrated by the example of the production and sale of product A, the price of which is 150 thousand rubles, variable costs (materials and wage) - 110 thousand rubles. We assume that when demand changes fixed costs for the entire volume amount to 1000 thousand rubles.

Increase in marginal profit by product item

The increase in marginal profit is calculated: with an increase in volume by 5 tons: (55-50) * (150-110) = 200 thousand rubles. with a decrease in volume by 10 tons: (40-50)*(150-110)=-400 thousand rubles.

For industrial enterprises who use semi-finished products in production, it is necessary to take into account that the cost of consumed materials and self-made work in the cost of the target product is determined by direct variable costs. All conditionally fixed costs, both indirect and direct costs, are recognized as period costs and remain outside the value of marginal costs.

The specialty and limited scope of application of this method should always be taken into account in order to avoid errors in planning. The validity of decisions aimed at increasing the production of products that bring maximum marginal profit per unit, and reducing unprofitable ones, should be based not only on the basis of the marginal approach. Plans for the development of the company's product portfolio in the future, the possibility of increasing production potential to meet customer demand, and improving the cost management system are key factors in business assessment.

TO BE CONTINUED...

Since marginal costing involves including only variable costs in the cost of production, it may seem that the terms “marginal” and “variable” are synonymous, but this is not entirely true. Marginal costs are the additional costs required to produce an additional unit of output. In the range of relevance (i.e. for normal output levels over a certain time period) they may coincide with variable costs per unit of output, but outside this range this identity becomes doubtful. Consider, for example, step costs as the volume of output increases, a point will be reached when the “true” marginal costs of the next unit of production will begin to include, in addition to the previous unit variable costs of production, another part of the increase in the “step”. Although this may seem like a problem of terminology, it also has a practical aspect as

Marginal costs usually vary at different production volumes because the efficiency of the production process changes. At an enterprise, marginal costs decrease with increasing output. This means that it is more profitable for the company to produce 51 refrigerators than just one.

It is important to distinguish between marginal costs and average costs. In this example, the marginal cost of the second refrigerator is 1,800 thousand rubles. However, the average cost per unit when two refrigerators are produced is 3800 2 = 1900 thousand rubles. Similarly, the marginal costs of the 11th refrigerator are 1,790 thousand rubles, but the average cost per unit for the production of 11 refrigerators is 1,708 thousand rubles. (18 790 11).

Marginal costs in the production of refrigerators

So, the marginal cost of production is the additional cost when one more unit of output is produced. Average costs for

To understand the optimal price for a product or service, economists use the concepts of marginal income and marginal costs.

In Fig. Figure 7-2(B) shows the marginal revenue and marginal cost graphs for each unit sold for our example.

The company fulfilled the contract to develop a portable telephone. The phone must be charged once a month and can be used within a 1 mile radius of the subscriber. Initial fixed costs were 4,000. The critical point is assumed to be 5,000 per 100 units. Total revenues will be equal to total costs also at the point 25,000 per 900 units. Marginal cost will be equal to contribution margin if 550 units are sold.

To characterize the optimal price of a product or service, economists use the concepts of marginal income and marginal costs. (The concept of contribution margin, but in a different formulation, is given in Section 2.6 of Part I.)

Marginal costs show how much the total costs per unit have changed due to a change in production output.

Chart B for our example shows lines reflecting marginal income and marginal costs for each unit sold.

The concept of pricing is studied from the perspective of microeconomics. The application of critical point methods (break-even point) is analyzed. The concepts of marginal income and marginal costs are discussed and methods for constructing marginal income and cost curves are explained.

Marginal costs and income are costs and income, but not per unit of output, but per unit of output. This is where they differ from incremental costs and income.

Marginal costs and revenues are additional costs and revenues per unit of production.

Variable (production) costs are associated with performing technological operations of the production process. Their total amount increases or decreases according to the increase or decrease in production volume. Per unit produced or products sold they represent, as it were, additional costs incurred in creating this unit. In this case, variable costs are sometimes called marginal costs per unit of output produced or sold.

One of the alternatives to the traditional domestic approach to calculating costs based on full costs and setting prices on the basis of full costs is an approach that began abroad more than sixty years ago. In accordance with it, the cost price of a product includes only direct variable costs, when incomplete or limited costs are planned and taken into account for individual objects. Other types of costs, which in their own way economic essence form part of current costs, are not included in the calculation, but are reimbursed with a total amount from revenue (gross profit). The partial cost accounting system has different countries its name. So, in the USA it is called direct costing (accounting for direct costs), in the UK - margin-nal-costing (accounting for marginal or marginal costs), in Germany and Austria - accounting for partial (marginal) costs or accounting for the amount of coverage. The first name, direct costing, is most often used in the domestic economic literature.

A tool effectively used in the theory and practice of economic analysis is the concept of marginal (marginal) costs - the costs of producing and selling the last unit of output. This is a relatively new concept for the traditional Russian system of accounting and analysis of economic activities, and for many it is associated with the concept of the break-even point of an enterprise.

Marginal costs are additional costs per unit of production. Marginal costs typically vary at different production volumes as the efficiency of the production process changes. They per unit of output decrease with increasing output.

IN various countries this system is called by different names. In Germany and Austria, the term accounting for partial costs or coverage amounts is used in the UK - marginal cost accounting in France - marginal accounting.

This classic method, used on the foreign market by many Russian exporting enterprises at present. Many people are familiar with the picture when the general director and the leading pricing specialist “play out” on the computer various options for profit behavior, taking into account a particular price for a product and various options for variable (marginal) costs before concluding an export contract. In fact, they perform a typical sensitivity analysis. Here, much depends on the proportion between fixed and variable costs, as well as on the share of marginal profit in revenue.

Comparison of historical and marginal (marginal) costs

The fact is that decisions of this kind are made by studying the patterns of changes in the average and marginal (marginal) costs of the company. We will talk about what these costs are and why their role for any company is so great.

To understand the nature of marginal costs, consider an example.

Marginal costs are the actual amount of costs that it costs to produce each additional unit of production.

Marginal costs -

It is equally important to determine which price should be taken into account, historical (at the time of attracting a source) or new (marginal, characterizing

Fixed and variable costs

To justify the company’s commercial strategy important has a classification of costs according to the degree of their dependence on production volumes into fixed and variable costs.

■ Fixed costs (FC)– costs, the volume of which is this moment does not depend directly on the size and structure of production.

Examples fixed costs– payment for premises, costs of maintaining buildings, costs of training and retraining of personnel, contributions to the repair fund, depreciation of fixed assets. Such expenses may increase over time, but they remain the same over a period of time (for example, rent over the course of a year). The term "fixed" thus indicates that these costs do not automatically change with changes in production volume. Fixed costs may change for another reason, for example, as a consequence of some management decision.

■ Variable costs (VC)– costs, the total volume of which at a given time is directly dependent on the volume of production and sales of the company’s products.

Variable costs are, for example, the cost of purchasing raw materials, labor, energy, fuel for production purposes, costs of containers, packaging for products, etc.

The variable cost curve in its most general form is shown in Fig. 20.1.

Rice. 20.1.

This curve starts from the origin - in the absence of production, the firm does not incur variable costs. This curve is increasing, since any increase in production is associated with an increase in the volume of variable costs. However, on the site AB they rise more slowly than production increases. Section AB illustrates, in particular, the firm's ability to operate its equipment at the most efficient scale of production, taking advantage of labor, batch production, and continuous schedules of the main production process.

Then variable costs increase at an accelerating pace, which is due to the effect of diminishing efficiency (returns), when all large quantity additional variable costs are required to produce each additional unit of output. In this case, the company’s equipment begins to be operated in a mode exceeding its design level.

Having considered general form functions of variable costs, we note that in the vast majority of practical calculations, the nonlinear form of the variable cost line is replaced by a linear one. Without incurring significant losses in the accuracy of calculations, economists-analysts benefit significantly from calculations using relatively simple linear models.

The classification of costs into fixed and variable is widely used in micro economic analysis.

Firstly, it makes it possible to introduce an important distinction for the purposes of economic analysis between the conditions of supply in different time periods. Thus, the short-term period in economic theory is characterized by the fact that the use of at least one production factor during this time remains unchanged. In the long run, all factors of production become variable. Supply in this case can fully adapt to changes in demand, which allows the firm to achieve the optimal combination of all the factors of production involved.

Secondly, dividing a company's costs into fixed and variable plays a very important role important role when the management of a company decides whether to continue working or close production. In this case, it is necessary to proceed from the fact that in the short term fixed costs cannot be avoided, even if production is completely stopped: the company has already paid for fixed factors, without which no production can be launched (or will have to pay even if production is completely stopped). By stopping the enterprise, the company saves only on variable costs. Therefore, if variable costs are covered by sales revenue, it is advisable for the company to continue production at least temporarily, in anticipation of better times, and direct all income received in excess of variable costs to reimburse fixed costs.

The amount of fixed costs F.C. and variable costs VC for a given volume of production are called gross (total) vehicle costs:

To make reasonable management decisions Manufacturers must know not only the total cost, but also their value per unit of output, i.e. level average costs companies.

In economic analysis, all types of average costs are actively used, in particular: average fixed costs AFC; average variable costs AVC; average gross costs ATS.

Average fixed costs are calculated using the formula

Since fixed costs F.C. are unchanged, then, following the growth of Q, the average fixed costs AFC gradually decrease.

Average variable costs are determined by the ratio

Average gross costs can be calculated in two ways:

From the above it follows that gross costs TS can be calculated using the fairly commonly used formula

Marginal costs MS

Another category of costs is very important for understanding the behavior of the company and making management decisions, although these costs, like the previously discussed opportunity costs, are usually underestimated by entrepreneurs and are very rarely calculated and analyzed by accounting services.

We are talking about the so-called marginal, or incremental, costs, the analysis of which provides an answer to the question of what will happen to the company’s costs if it increases its production volume by one additional unit of product or service.

Marginal costs can be calculated as follows:

More strictly, marginal costs can be defined as the derivative of total costs by volume of production:

Obviously the comparison marginal cost with marginal revenue M.R.– revenue from the sale of an additionally produced unit of product – is very significant for determining the behavior of the company in market conditions.

In particular, as long as the average price of output or, in other words, marginal revenue M.R. firm exceeds marginal cost MR > MS, The firm can increase its production volumes while maximizing its total profit. And vice versa, if M.R.< МС, the firm needs to reduce its output to a level that meets the condition MR = MS.

It can also be very important for managers to analyze the ratio of marginal and average gross costs, in minimizing which each striving for efficient work firm.

If a firm seeks to reduce average gross costs as much as possible, it must maintain production at a level of output at which marginal costs are equal to average gross costs: MC = ATS.

Indeed, if the last unit of production costs less than the previous ones, the average gross costs calculated taking into account the last unit should be less than the previous ones. If MS > ATS, then the new average gross costs, taking into account the last unit, will be higher than the previous average gross costs.

Finally, when MS = ATS(the production costs of the last unit of output are exactly equal to the average gross production costs of the previous units), then the new vehicles, taking into account the last unit, are equal to the previous average gross costs.

Fig.4.4 Relationship between total, average and marginal fixed and variable costs.

Note that the line of short-term variable costs VC(Q) is obtained from the above output line with one variable factor, if the Q and TC(L) axes are swapped.

Production costs – costs - costs of production and sales of products.

Limit (marginalcosts)- increase total costs caused by the production of an additional unit of product;

Average variables(average variable costs) – variable costs per unit of production;

IN long term

To analyze production costs in short period The concept of total costs of the vehicle is introduced, which represents the economic costs of the company. TC = VC+FC, where VC is variable costs, FC is fixed costs. Variable costs depend on the volume of production: VC = VC(Q), these include the cost of paying for the main production personnel, for raw materials, materials, fuel, energy, etc. On the contrary, fixed costs do not depend on the volume of production (FC=const) and include the costs of buildings and structures, machinery and equipment, payment of administrative and management personnel, etc.

Average costs represent costs per unit of production:

ATC = TC/Q - average total costs;

AVC = VC/Q - average variable costs;

AFC = FC/Q - average fixed costs.

ATC = (FC + VC)/Q = AFC + AVC.

Marginal cost represents the additional cost required to produce one additional unit of output:

MTC = DTC/DQ is marginal total cost, but since DFC = 0, MTC=MVC = DVC/Q = MC (simply “marginal cost”).

The relationship between total, average and marginal costs is illustrated in Figure 4.4.

TC

Fig.4.4 Relationship between total, average and marginal fixed and variable costs.

Note that the line short-term variable costs VC(Q) is obtained from the above release line with one variable factor if the Q and TC(L) axes are swapped.

The minimums of the ATC and AVC lines are located at the points of intersection of these lines with the MC line (points A and B). These points, corresponding to the minimum unit costs, reflect the most effective ways product production. The resulting ATC curve is U-shaped, with small Q in ATC is large specific gravity fixed costs, at large Q there is a large proportion of variable costs subject to the law of diminishing returns.

IN long term There are no fixed costs; the firm can make capital investments and choose the level of optimal production capacity. Choice production capacity determines the shape of the long-run average cost curve LRAC. (Fig. 4.5) This curve is obtained by summing the portions of the short-run average cost (SRAC) curves that are optimal for various given values ​​of output. During a technological transition from one level of output to another, investments are made, and the new minimum point may correspond to more efficient production. With an infinite number of process transitions possible, the LRAC line becomes a smooth, continuous line enveloping the SRAC curves. The resulting LRAC curve is also U-shaped, but this is due to the law of diminishing returns to scale.

TS TS

Rice. 4.5 Selection of production capacity and the long-run average cost curve

The production volume Q2 at which positive economies of scale ends and negative economies of scale begin is called the minimum efficient scale of production (MES).

IN long termbalance comes when price equals the minimum average cost LRAC.

If the minimum individual average cost is greater than the market price, then the firm receives economic profit. If an industry is profitable, then competitors rush into it without any barriers to entry and the industry supply curve shifts to the left, reducing the market price, as shown in the figure. The opposite occurs in the case of economic losses - firms with high individual average costs leave the industry, general offer is shrinking, market prices are rising.

• The structure of the organization’s external environment and the significance of its consideration in a market economy
• Essence, process, features of strategic management
• Strategy development methods (BGK matrix, SWOT analysis and others)
• Characteristics of mechanical and organic systems and areas of their effective application
• Staff, line, functional powers in organizations. Delegation of authority
• The concept of leadership, leadership styles, situational leadership.
• The concept of quantitative methods for substantiating management decisions.
• Basic concepts and elements of human resource management
• Change management model. Methods for overcoming resistance to change.
• Behavioral differences in national business cultures
• The concept of “production”, production possibilities curve and factors of production.
• What is the concept of opportunity cost? Opportunity cost curve analysis.
• Define “product”. How does “product” differ from “product” and “good”.
• The law of demand and its manifestation for goods of various types (essential goods, normal goods, goods of prestigious demand).
• Calculation of demand elasticity. Differences in the values ​​of elasticity coefficients and their significance for making economic decisions.
• Consumer budget constraint. Analysis of income-consumption and price-consumption curves. Income effect and substitution effect.
• The law of supply and the role of production costs in its formation
• Production and factors of production. Law of Diminishing Marginal Productivity.
• The rule of least cost and the rule of profit maximization.
• Selection of production technology. Technical and economic efficiency. Isoquant map analysis. Technical replacement zone.
• Producer equilibrium. Development path and economies of scale.
• Economic nature of the company. Typology of firm resources. Contract theory.
• Typology of firm costs and their significance for assessing business decisions.
• The ratio of average and marginal costs. Patterns of changes in costs as the scale of production increases and the use of new technologies.
• Producer equilibrium in the long and short run.
• Pure monopoly: characteristic features, economic and administrative monopoly, natural monopolies. Advantages and disadvantages of monopoly.
• Monopolistic competition. Costs of monopolistic competition. Non-price competition, advertising.
• Oligopoly: characteristic features, advantages, disadvantages. Cournot model. Analysis of the oligopolistic market in game theory.
• Typology of cooperative behavior of oligopolists: cartel, conspiracy.
• Goals and methods of antimonopoly regulation. Problems of its implementation in the Russian economy.
• The concept of human capital. History of the formation of development trends.
• The choice between work and rest. Differentiation of wage rates.

Every entrepreneur constantly asks questions: “How will increasing production volume affect my profits? Will I receive additional profit? How much will my costs change?

Analysis of marginal costs clearly demonstrates how exactly the manufacturer's costs change when producing additional products or services. In fact, they characterize how much each new unit of production will cost.

Formulas for calculating marginal costs

Marginal costs are the company's additional costs (an increase in gross costs) for the production of an additional unit of product. They are also called marginal costs. The calculation of marginal costs is equal to the change in total costs with a slight change in the quantity of manufactured products:

Marginal costs can be:

1) Change in total variable costs between the production of a new and previous unit;

2) Changes in total costs in relation to changes in the quantity of products.

This is due to the fact that the size of fixed production costs (FC), which are part of total costs, does not depend in any way on the number of goods and services produced in a short production period. And since fixed costs remain unchanged in a given period, they do not affect the amount of marginal costs, while changes in variable costs entail changes in additional costs.

Example of marginal cost calculation

The company's fixed costs are 8, variable costs for 1 unit of production are 3, for 2 units. – 9, for 3 units. – 11, for 4 units. – 15, for 5 units. – 24, for 6 units. – 34. It is necessary to calculate the marginal costs for each new unit of production.

The table shows that marginal costs first decrease, and then, having reached a minimum point, they begin to increase as variable costs increase.

Marginal Cost Curve: Why Is It Sloping Up?

The marginal cost curve graphically depicts a situation in which manufacturing costs each new unit of goods (services) exceed manufacturing costs previous unit. First, the value of additional costs decreases until it reaches point Q1, which characterizes a certain volume of production, and then the value of MC increases sharply. And the larger the production volume, the higher the level of marginal costs will be.

Why is this trend emerging? Due to the fact that the return on resources is constantly decreasing. As the quantity of output increases, the marginal product of a variable resource constantly decreases due to the law of diminishing marginal utility.

After a certain amount of the good consumed, it marginal utility with each new unit it begins to decrease. This necessitates the use of an increasing amount of variable resource in the production process of each new product or service. And the higher the level of volume of goods (services) already produced, the more variable resources will be required. And since you have to pay for each increase in variable resources, the total cost of producing each additional product and services are also increasing.

Conclusion

Marginal costs are direct variable costs of the company, which directly depend on the volume of production of products and services, as well as sales volumes. They characterize the amount of additional costs when releasing a new unit of production. Marginal costs are used to determine marginal profit - important indicator in the analysis of hidden reserves for the production and sale of goods and services.

Marginal costs help enterprise managers make decisions regarding the release of additional batches of products, as well as formulate optimal production plans (improve the range of goods produced, determine the level of profitability of a particular type of product, stop the production of unprofitable items).