Involuntary costs. Display in the balance sheet

Short term is a period of time during which some factors of production are constant and others are variable.

Fixed factors include fixed assets and the number of firms operating in the industry. During this period, the company has the opportunity to vary only the degree of loading production capacity.

Long term is a period of time during which all factors are variable. In the long term, a company has the opportunity to change the overall size of buildings, structures, the amount of equipment, and the industry - the number of firms operating in it.

Fixed costs (FC) - these are costs, the value of which in the short term does not change with an increase or decrease in production volume.

Fixed costs include costs associated with the use of buildings and structures, machinery and production equipment, rent, major repairs, as well as administrative costs.

Because As production volume increases, total revenue increases, then average fixed costs (AFC) represent a decreasing value.

Variable costs (VC) - these are costs, the value of which changes depending on the increase or decrease in production volume.

Variable costs include the cost of raw materials, electricity, auxiliary materials, and labor.

Average variable costs (AVC) are:

Total costs (TC) – a set of fixed and variable costs of the company.

Total costs are a function of output produced:

TC = f (Q), TC = FC + VC.

Graphically, total costs are obtained by summing the curves of fixed and variable costs (Fig. 6.1).

Average total cost is: ATC = TC/Q or AFC +AVC = (FC + VC)/Q.

Graphically, ATC can be obtained by summing the AFC and AVC curves.

Marginal Cost (MC) is the increase in total costs caused by an infinitesimal increase in production. Marginal cost usually refers to the cost associated with producing an additional unit of output.

20. Long-run production costs

The main feature of costs in the long run is the fact that they are all variable in nature - the firm can increase or reduce capacity, and it also has enough time to decide to leave a given market or enter it by moving from another industry. Therefore, in the long run, average fixed and average variable costs are not distinguished, but average costs per unit of production (LATC) are analyzed, which in essence are also average variable costs.

To illustrate the situation with costs in the long run, consider a conditional example. Some enterprise expanded over a fairly long period of time, increasing its production volumes. The process of expanding the scale of activity will be conditionally divided into three short-term stages within the analyzed long-term period, each of which corresponds to different enterprise sizes and volumes of output. For each of the three short-term periods, short-term average cost curves can be constructed for different enterprise sizes - ATC 1, ATC 2 and ATC 3. The general average cost curve for any volume of production will be a line consisting of the outer parts of all three parabolas - graphs of short-term average costs.

In the example considered, we used a situation with a 3-stage expansion of the enterprise. A similar situation can be assumed not for 3, but for 10, 50, 100, etc. short-term periods within a given long-term period. Moreover, for each of them you can draw the corresponding ATS graphs. That is, we will actually get a lot of parabolas, a large set of which will lead to the alignment of the outer line of the average cost graph, and it will turn into a smooth curve - LATC. Thus, long-run average cost (LATC) curve represents a curve that envelops an infinite number of short-term average production cost curves that touch it at their minimum points. The long-run average cost curve shows the lowest cost per unit of production at which any level of output can be achieved, provided that the firm has time to change all factors of production.

In the long run there are also marginal costs. Long Run Marginal Cost (LMC) show the change in the total amount of costs of the enterprise in connection with a change in the volume of output of finished products by one unit in the case when the company is free to change all types of costs.

The long-run average and marginal cost curves relate to each other in the same way as the short-run cost curves: if LMC lies below LATC, then LATC falls, and if LMC lies above laTC, then laTC rises. The rising portion of the LMC curve intersects the LATC curve at the minimum point.

There are three segments on the LATC curve. In the first of them, long-term average costs are reduced, in the third, on the contrary, they increase. It is also possible that there will be an intermediate segment on the LATC chart with approximately the same level of costs per unit of output at different values ​​of output volume - Q x. The arcuate nature of the long-term average cost curve (the presence of decreasing and increasing sections) can be explained using patterns called positive and negative effects of increased scale of production or simply scale effects.

The positive effect of scale of production (the effect of mass production, economies of scale, increasing returns to scale of production) is associated with a decrease in costs per unit of production as production volumes increase. Increasing returns to scale of production (positive economies of scale) occurs in a situation where output (Q x) grows faster than costs rise, and therefore the enterprise's LATC falls. The existence of a positive effect of scale of production explains the descending nature of the LATS graph in the first segment. This is explained by the expansion of the scale of activity, which entails:

1. Increased labor specialization. Labor specialization presupposes that diverse production responsibilities are divided among different workers. Instead of carrying out several different production operations at the same time, which would be the case with a small-scale enterprise, in conditions of mass production each worker can limit himself to one single function. This results in an increase in labor productivity and, consequently, a reduction in costs per unit of production.

2. Increased specialization of managerial work. As the size of an enterprise grows, the opportunity to take advantage of specialization in management increases, when each manager can focus on one task and perform it more efficiently. This ultimately increases the efficiency of the enterprise and entails a reduction in costs per unit of production.

3. Efficient use of capital (means of production). The most efficient equipment from a technological point of view is sold in the form of large, expensive kits and requires large production volumes. The use of this equipment by large manufacturers allows them to reduce costs per unit of production. Such equipment is not available to small firms due to low production volumes.

4. Savings from using secondary resources. A large enterprise has more opportunities to produce by-products than a small company. A large firm thus makes more efficient use of the resources involved in production. Hence the lower costs per unit of production.

The positive effect of scale of production in the long run is not unlimited. Over time, the expansion of an enterprise can lead to negative economic consequences, causing a negative effect of scale of production, when the expansion of the volume of a company's activities is associated with an increase in production costs per unit of output. Diseconomies of scale occurs when production costs rise faster than production volume and, therefore, LATC rises as output increases. Over time, an expanding company may encounter negative economic facts caused by the complication of the enterprise management structure - the management floors separating the administrative apparatus and the production process itself are multiplying, top management turns out to be significantly removed from the production process at the enterprise. Problems arise related to the exchange and transmission of information, poor coordination of decisions, and bureaucratic red tape. The efficiency of interaction between individual divisions of the company decreases, management flexibility is lost, control over the implementation of decisions made by the company's management becomes more complicated and difficult. As a result, the operating efficiency of the enterprise decreases and average production costs increase. Therefore, when planning its production activities, a company needs to determine the limits of expanding the scale of production.

In practice, cases are possible when the LATC curve is parallel to the x-axis at a certain interval - on the graph of long-term average costs there is an intermediate segment with approximately the same level of costs per unit of output for different values ​​of Q x. Here we are dealing with constant returns to scale of production. Constant returns to scale occurs when costs and output grow at the same rate and, therefore, LATC remains constant at all output levels.

The appearance of the long-term cost curve allows us to draw some conclusions about the optimal enterprise size for different sectors of the economy. Minimum effective scale (size) of an enterprise- the level of output from which the effect of savings due to an increase in the scale of production ceases. In other words, we're talking about about such values ​​of Q x at which the company achieves the lowest costs per unit of production. The level of long-term average costs determined by the effect of economies of scale affects the formation of the effective size of the enterprise, which, in turn, affects the structure of the industry. To understand, consider the following three cases.

1. The long-term average cost curve has a long intermediate segment, for which the LATC value corresponds to a certain constant (Figure a). This situation is characterized by a situation where enterprises with production volumes from Q A to Q B have the same cost. This is typical for industries that include enterprises of different sizes, and the level of average production costs for them will be the same. Examples of such industries: wood processing, timber industry, food production, clothing, furniture, textiles, petrochemical products.

2. The LATC curve has a fairly long first (descending) segment, in which there is a positive effect of production scale (Figure b). The minimum cost is achieved with large production volumes (Q c). If the technological features of the production of certain goods give rise to a long-term average cost curve of the described form, then large enterprises will be present in the market for these goods. This is typical, first of all, for capital-intensive industries - metallurgy, mechanical engineering, automotive industry, etc. Significant economies of scale are also observed in the production of standardized products - beer, confectionery, etc.

3. The falling segment of the long-term average costs graph is very insignificant; the negative effect of scale of production quickly begins to work (Figure c). In this situation, the optimal production volume (Q D) is achieved with a small volume of output. If there is a large-capacity market, we can assume the possibility of the existence of many small enterprises producing this type of product. This situation is typical for many sectors of the light and food industries. Here we are talking about non-capital-intensive industries - many types retail, farms, etc.

Selecting factors of production that minimize production

Let's start by considering the fundamental problem that all firms face: how to choose the combination of factors to achieve a certain level of output at minimum cost. To simplify, let's take two variable factors: labor (measured in hours of work) and capital (measured in hours of use of machinery and equipment). We start from the assumption that both labor and capital can be hired or rented at competitive markets. The price of labor is equal to the wage rate w, and the price of capital is equal to the rent for equipment r. We assume that capital is "rented" rather than purchased, and can therefore put all business decisions on a comparative basis. Since labor and capital are attracted competitively, we assume the price of these factors to be constant. We can then focus on the optimal combination of factors of production without worrying that large purchases will cause a jump in the prices of the factors of production used.

22 Determination of price and output in a competitive industry and in a pure monopoly A pure monopoly contributes to increasing inequality in the distribution of income in society as a result of monopoly market power and charging higher prices at the same costs than in conditions pure competition, which allows you to obtain a monopoly profit. In conditions of market power, it is possible for a monopolist to use price discrimination, when different prices are set for different buyers. Many of the purely monopolistic firms are natural monopolies, which are subject to mandatory government regulation in accordance with antitrust laws. To study the case of a regulated monopoly, we use graphs of demand, marginal revenue and costs of a natural monopoly, which operates in an industry where positive economies of scale occur at all output volumes. The higher the firm's output, the lower its average ATC costs. Due to this change in average costs, the marginal costs of MC for all volumes of production will be lower than average costs. This is explained by the fact that, as we have established, the schedule marginal cost intersects the average cost graph at the minimum point of the ATC, which is absent in this case. We show the determination of the optimal volume of production by a monopolist and possible methods of regulating it in Fig. Price, marginal revenue (marginal income) and costs of a regulated monopoly As can be seen from the graphs, if this natural monopoly were unregulated, then the monopolist, in accordance with the rule MR = MC and the demand curve for its products, chose the quantity of products Qm and the price Pm, which allowed I wish he could get the maximum gross profit. However, the price Pm would exceed the socially optimal price. The socially optimal price is the price that ensures the most efficient allocation of resources in society. As we established earlier in topic 4, it must correspond to marginal cost (P = MC). In Fig. this is the price Po at the intersection point of the demand schedule D and the marginal cost curve MC (point O). The production volume at this price is Qо. However, if government agencies fixed the price at the level of the socially optimal price Po, this would lead the monopolist to losses, since the price Po does not cover the average gross costs of the vehicle. To solve this problem, the following main options for regulating a monopolist are possible: Allocation of state subsidies from the budget of the monopoly industry to cover the gross loss in the case of establishing a fixed price at the socially optimal level. Granting the monopoly industry the right to conduct price discrimination in order to obtain additional income from more solvent consumers to cover the monopolist's losses. Setting the regulated price at a level that ensures normal profits. In this case, the price is equal to the average gross cost. In the figure, this is the price Pn at the intersection point of the demand schedule D and the average gross cost curve of the ATC. The output at the regulated price Pn is equal to Qn. The price Pn allows the monopolist to recover all economic costs, including making a normal profit.

23. This principle is based on two main points. First, the firm must decide whether it will produce the product. It should be produced if the company can make either a profit or a loss that is less than fixed costs. Secondly, you need to decide how much of the product should be produced. This level of production must either maximize profits or minimize losses. This technique uses formulas (1.1) and (1.2). Next, you should produce such a volume of production Qj that maximizes profit R, i.e.: R(Q) ^max. The analytical determination of the optimal production volume is as follows: R, (Qj) = PMj Qj - (TFCj + UVCj QY). Let us equate the partial derivative with respect to Qj to zero: dR, (Q,) = 0 dQ, " (1.3) РМг - UVCj Y Qj-1 = 0. where Y is the coefficient of change in variable costs. The value of gross variable costs changes depending on the change in volume production. The increase in the amount of variable costs associated with an increase in production volume by one unit is not constant. It is assumed that variable costs increase at an increasing pace. This is explained by the fact that constant resources are fixed, and in the process of production growth, variable resources increase. Thus, marginal productivity falls and, therefore, variable costs increase at an increasing pace. "To calculate variable costs, it is proposed to apply a formula, and based on the results of statistical analysis it is established that the coefficient of change in variable costs (Y) is limited to the interval 1< Y < 1,5" . При Y = 1 переменные издержки растут линейно: TVCг = UVCjQY, г = ЇЯ (1.4) где TVCг - переменные издержки на производство продукции i-го вида. Из (1.3) получаем оптимальный объем производства товара i-го вида: 1 f РМг } Y-1 QOPt = v UVCjY , После этого сравнивается объем Qг с максимально возможным объемом производства Qjmax: Если Qг < Qjmax, то базовая цена Рг = РМг. Если Qг >Qjmax, then, if there is a production volume Qg at which: Rj(Qj) > 0, then Рg = PMh Rj(Qj)< 0, то возможны два варианта: отказ от производства i-го товара; установление Рг >RMg. The difference between this method and approach 1.2 is that here the optimal sales volume is determined at a given price. It is then also compared to the maximum "market" sales volume. The disadvantage of this method is the same as that of 1.2 - it does not take into account the entire possible composition of the enterprise’s products in conjunction with its technological capabilities.

Lecture: PRODUCTION COSTS AND PROFIT OF A FIRM.

Production costs: concept and types.

The behavior of the company in the short and long term.

Revenues and profits of the company.

Production costs: concept and types.

If the buyer, when purchasing a product on the market, is primarily interested in its usefulness, then for the seller (manufacturer), production costs occupy a central place. In microeconomics important role The time factor plays a role. Therefore, before characterizing costs, we introduce the concepts of short-term and long-term periods of time.

Short-term (or short) period- this is a period of time during which some factors of production are constant, while others are variable. Fixed factors of production include resources such as the overall size of buildings and structures, the number of machines and equipment used, etc., as well as the number of firms operating in the industry . It is assumed that the opportunities for free access of new firms to the industry in the short term are very limited. In the short term, the company has the opportunity to vary only the degree of utilization of production capacity (by changing the length of working hours, the amount of raw materials used, etc.).

Long-term (long) period- this is the period of time during which all factors are variable. In the long run, a firm has the opportunity to change the overall size of buildings and structures, the number of machines and equipment used, etc., and the industry - the number of firms operating in it. The long run is the period during which barriers to entry and exit from an industry are overcome.

Production costs- the total costs of producing a product or service in monetary terms.

Production costs are divided into:

individual- individual entrepreneur, company;

public- for production of products, environmental protection, training of qualified work force, scientific developments;

production- for the production of goods and services;

appeals- related to the sale of manufactured products;

external (explicit)- resources purchased by the company (accounting costs);

internal (implicit, or implicit)- the company’s own resources (not reflected in the financial statements).

Internal and external costs are economic costs of the company. A firm's economic costs also include normal profit- this is the minimum profit that keeps an entrepreneur in a given industry.

Costs are classified in various ways. Thus, from the point of view of an individual enterprise (firm), a distinction is made between explicit and implicit costs.Explicit (external) costs - cash payments that an enterprise (firm) makes to suppliers of production factors in the case when these factors do not belong to it. Explicit costs include wages paid to employees, commissions paid to trading firms, payments to banks and other financial service providers, transportation costs, depreciation of equipment, costs of raw materials and supplies, etc.These are accounting costs. Implicit (implicit, internal) costs - the cost of services of factors of production that are used but not purchased, or this is the opportunity cost of using resources owned by the owners of firms that are not received in exchange for explicit (monetary) payments. Thus, if the owner of a small company works alongside the employees of this company without receiving a salary, then he thereby refuses to receive a salary by working somewhere else. Implicit costs are usually not reflected in financial statements. Establishing the distinction between explicit and implicit production costs is necessary to understand the types of profit.Normal profit - this is the minimum payment that the owner of the company must receive so that it makes sense for him to use his entrepreneurial talent in this field of activity. Lost income from the use of own resources and normal profit in total form internal costs. That's why,economic costs is the sum of explicit and implicit costs.

Production costs in the short term are divided into:

constant (FWITH)- their value does not change depending on changes in production volume. They exist even if the company does not produce anything. Includes: payments of interest on loans and borrowings, rent, depreciation, property tax, insurance premiums, salaries to management personnel and specialists of the enterprise (firm);

variables (V.C.) - vary directly depending on the volume of production. They are associated with the costs of purchasing raw materials and labor. The dynamics of variable costs is uneven: starting from zero, as production grows, they initially grow very quickly; then, as production volumes further increase, the factor of economy in mass production begins to affect, and the growth of variable costs becomes slower than the increase in production. Subsequently, however, when the law of diminishing returns comes into play, variable costs again begin to outpace production growth. In the long run, all costs are variable;

gross (total) (TS) is the sum of fixed and variable costs for each given volume of production (TC = FC + VC). A graphical representation of FC, VC, TC is shown in Fig. 1;

WITH

VС

Fig.1. General, fixed and variable costs.

average general (ATS or AC)- costs per unit of production (AC = TC / Q). At first, the average costs are quite high. This is due to the fact that large fixed costs are distributed over a small volume of production. As production increases, fixed costs fall on more and more units of output, and average costs quickly fall to a minimum at point K (Fig. 2). As production volume grows, the main influence on the value of average costs begins to be exerted not by fixed, but by variable costs. . Therefore, due to the fact that as production volume increases, the profitability of the resources used decreases, the curve begins to go up;

average variables (AVWITH)- variable costs per unit of production;

average constants (AFWITH)- fixed costs per unit of output;

limit (MS)- the cost of producing an additional unit of output. They show how much it will cost the enterprise to increase production volume by one unit or how much can be “saved” by reducing production volume by this last unit (MC = TCn – TCn- 1 = ΔTC / ΔQ = ΔVC / ΔQ).

The behavior of the company in the short and long term.

There is a close relationship between average variable cost, average total cost, and marginal cost. The marginal cost curve MC (Fig. 2) intersects the average cost curve AC at point K, and the average variable cost curve ABC at point B, which have a minimum value.

WITH MS AU

A.F.C.

Rice. 2. The relationship between average and marginal costs.

This can be explained as follows: if the marginal costs MC are less than the average costs AC, the latter decrease (per unit of output). This means that average total cost will fall as long as the marginal cost curve is below the average cost curve. Average costs will rise as long as the marginal cost curve is above the average cost curve. total costs. The same can be said in relation to the curves of marginal and average variable costs - MC and AVC. As for the average fixed cost curve AFC, there is no such dependence here, because the marginal and average fixed cost curves are not related to each other.

Initially, marginal cost will be lower than average and average variable costs. However, due to the law of diminishing returns, they will begin to exceed both of them as production progresses. As a result, it becomes obvious that it is not economically profitable to further expand production.

Analysis of production costs in the long run is based on the fact that only variable costs change, i.e. dependent on production volume.

For long term The concepts of total and average costs are relevant, and here it is no longer possible to divide them into constant and variable. All costs of an enterprise (firm) are variable.

Figure 3 shows the long-term average cost curve (AC L), which consists of sections of short-term cost curves (AC 1, AC 2, etc.) in relation to various sizes of those enterprises that can be built. It shows the lowest cost per unit of production with which any volume of production can be achieved, provided that the enterprise has had sufficient time at its disposal to make the necessary changes in the size of the enterprise. Consequently, the firm determines the maximum volume of production at the lowest cost.

A.C. L

Q 1 Q 2 Q 3 Q 4 Q 5 Q

Fig.3. Long-run average cost curve.

Revenues and profits of the company.

Using resources for the production and sale of products, the entrepreneur receives income, which depends on the volume of products sold and market prices.

There are total, average and marginal income. Total (gross) income - the total amount of cash revenue received by a company from the sale of its products. The amount of total income depends on the volume of output (sales) and sales prices. Average income- this is the amount of cash revenue per unit of products sold. Marginal Revenue- income received as a result of the production and sale of an additional unit of product. Comparison marginal income and marginal costs are used by commodity producers to make decisions on production development. As long as marginal revenue exceeds marginal cost and gross revenue exceeds gross cost, increasing output generates profit.

Profit is the difference between income on the one hand and costs, including mandatory payments to the state (taxes and similar payments), on the other.

Profit performs the following functions:

1) economic, which lies in the fact that profit is a reward to the owners of capital for providing it to organize the production of a product;

2) risky, which consists in rewarding the entrepreneur for the risks that always accompany entrepreneurial activity;

3) functional, which consists of rewards for technical, product and organizational innovations aimed at improving production.

The main forms of profit are economic and accounting profit . Accounting profit- part of the company’s income that remains from the total revenue after compensation for explicit (external, accounting) costs, i.e. fees for supplier resources. With this approach, only explicit costs are taken into account and internal (hidden) costs are ignored. Economic or net profit- part of the company’s income that remains after subtracting all costs (external and internal, including the entrepreneur’s normal profit) from the total income of the company.

The market mechanism also uses other forms of profit: gross, balance, normal, marginal, maximum, monopoly. Gross profit- the company’s total profit from sales and non-operating income . Balance sheet profit- the total amount of profit minus the losses incurred by the company (profit from sales plus net non-operating income (fines received minus those paid, interest on a loan received minus those paid, etc.)). Marginal profit is defined as the difference between marginal revenue and marginal cost. This is the profit per additional individual unit of production. For the company, this is a benchmark for increasing production volume. Maximum profit- the highest profit when comparing gross income and gross costs. The firm will receive the maximum absolute amount of profit at such a volume of production when gross income exceeds gross costs by the maximum amount. Monopoly profit- this is the profit received by a monopolist firm on the basis of limiting competition, respectively, production of products with an increase in price. Monopoly profits are typically higher than average profits and are obtained through the redistribution of income among firms.

Every business is interested in maximizing its profits. There are two ways to determine the possible maximum profit of an enterprise.

1). The first way is to compare marginal revenue (MY) and marginal cost (MC) of a product. Obviously, marginal revenue will decrease as the volume of production of a good increases. The reason for this is the law of demand, since the more goods we want to sell, the more low prices must be installed on this product. Marginal costs will gradually increase as the cost of inputs for production will increase as the enterprise increases the demand for them (the greater the demand, the higher the price, with constant supply). In addition, the productivity of resources decreases, since initially any enterprise uses the highest quality and most productive factors of production, and then all the other, less productive ones.

WITH MS

Rice. 3. The relationship between average and marginal costs.

Obviously, as long as marginal revenue is greater than marginal cost, gross (total) profit will increase and reach a maximum at the point of intersection (equality) of marginal revenue and marginal cost. When marginal cost becomes greater than marginal revenue, total profit will begin to decline. Therefore, the condition for maximum profit will be the equality of marginal revenues and marginal costs.

M.Y.= M.C.

2) The second method is based on dividing costs into fixed (FC) and variable (VC). If you need to determine the volume of production that is needed for the enterprise to break even (profit is zero), then you can use the formula:

Q= F.C./(P- AVC)

Since the difference between P (price of a product) and AVC (average variable cost per unit of product) gives income without taking into account fixed costs per unit of product (it is called marginal income), then it is obvious that profit will be equal to zero when the total amount of marginal income Q(P-AVC) is equal to fixed costs.

Q= (FC+In)/(P- AVC)

In this case, the resulting volume must be compared with the market capacity, that is, estimate the amount of money that consumers are willing to spend on a given product, and divide this amount by the price of the product.

Each enterprise incurs certain costs in the course of its activities. There are different ones. One of them involves dividing costs into fixed and variable.

The concept of variable costs

Variable costs are those costs that are directly proportional to the volume of products and services produced. If an enterprise produces bakery products, then the consumption of flour, salt, and yeast can be cited as an example of variable costs for such an enterprise. These costs will increase in proportion to the increase in the volume of bakery products produced.

One cost item can relate to both variable and fixed costs. Thus, energy costs for industrial ovens on which bread is baked will serve as an example of variable costs. And the cost of electricity for lighting an industrial building is a fixed cost.

There is also such a thing as conditionally variable costs. They are related to production volumes, but to a certain extent. At a small production level, some costs still do not decrease. If a production furnace is half loaded, then the same amount of electricity is consumed as a full furnace. That is, in this case, when production decreases, costs do not decrease. But as output increases above a certain value, costs will increase.

Main types of variable costs

Here are examples of variable costs of an enterprise:

• The wages of workers, which depend on the volume of products they produce. For example, in a bakery production there is a baker and a packer, if they have piecework wages. This also includes bonuses and rewards to sales specialists for specific volumes of products sold.
• Cost of raw materials. In our example, these are flour, yeast, sugar, salt, raisins, eggs, etc., packaging materials, bags, boxes, labels.
• are the cost of fuel and electricity that is spent on the production process. It could be natural gas, gasoline. It all depends on the specifics of a particular production.
• Another typical example of variable costs are taxes paid based on production volumes. These are excise taxes, taxes under tax), simplified taxation system (Simplified taxation system).
• Another example of variable costs is paying for services from other companies if the volume of use of these services is related to the organization's level of production. It can be transport companies, intermediary firms.

Variable costs are divided into direct and indirect

This division exists because different variable costs are included in the cost of the product differently.

Direct costs are immediately included in the cost of the product.

Indirect costs are distributed over the entire volume of goods produced in accordance with a certain base.

Average variable costs

This indicator is calculated by dividing all variable costs by production volume. Average variable costs can either decrease or increase as production volumes increase.

Let's look at the example of average variable costs in a bakery. Variable costs for the month amounted to 4,600 rubles, 212 tons of products were produced. Thus, average variable costs will be 21.70 rubles/t.

Concept and structure of fixed costs

They cannot be reduced in a short period of time. If output volumes decrease or increase, these costs will not change.

Fixed production costs usually include the following:

• rent for premises, shops, warehouses;
• utility fees;
• administration salary;
• costs of fuel and energy resources, which are consumed not by production equipment, but by lighting, heating, transport, etc.;
• advertising expenses;
• payment of interest on bank loans;
• purchase of stationery, paper;
• costs for drinking water, tea, coffee for employees of the organization.

Gross costs

All of the above examples of fixed and variable costs add up to gross, that is, the total costs of the organization. As production volumes increase, gross costs increase in terms of variable costs.

All costs, in essence, represent payments for purchased resources - labor, materials, fuel, etc. The profitability indicator is calculated using the sum of fixed and variable costs. An example of calculating the profitability of core activities: divide profit by the amount of costs. Profitability shows the effectiveness of an organization. The higher the profitability, the better the organization performs. If profitability is below zero, then expenses exceed income, that is, the organization’s activities are ineffective.

Enterprise cost management

It is important to understand the variables and fixed costs. With proper management of costs in an enterprise, their level can be reduced and greater profits can be obtained. It is almost impossible to reduce fixed costs, therefore effective work Cost reduction can be done in terms of variable costs.

How can you reduce costs in your enterprise?

Each organization works differently, but basically there are the following areas of cost reduction:

1. Reducing labor costs. It is necessary to consider the issue of optimizing the number of employees and tightening production standards. An employee can be laid off, and his responsibilities can be distributed among others, with additional payment for additional work. If production volumes increase at the enterprise and the need arises to hire additional people, then you can go by revising production standards and or increasing the volume of work in relation to old employees.

2. Raw materials are an important part of variable costs. Examples of their abbreviations could be as follows:

• searching for other suppliers or changing the terms of delivery by old suppliers;
• introduction of modern economical resource-saving processes, technologies, equipment;

• stopping the use of expensive raw materials or materials or replacing them with cheap analogues;
• carrying out joint purchases of raw materials with other buyers from one supplier;
• independent production of some components used in production.

3. Reduction of production costs.

This may include selecting other rental payment options or subletting space.

This also includes savings on utility bills, which requires careful use of electricity, water, and heat.

Savings on repairs and maintenance of equipment, vehicles, premises, buildings. It is necessary to consider whether it is possible to postpone repairs or maintenance, whether it is possible to find new contractors for these purposes, or whether it is cheaper to do it yourself.

It is also necessary to pay attention to the fact that it may be more profitable and economical to narrow production and transfer some side functions to another manufacturer. Or, on the contrary, enlarge production and carry out some functions independently, refusing to cooperate with related companies.

Other areas of cost reduction may include the organization's transportation, Advertising activity, reducing the tax burden, paying off debts.

Any enterprise must take into account its costs. Work to reduce them will bring more profit and increase the efficiency of the organization.

Any business involves costs. If they are not there, then there is no product supplied to 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 reflecting the variety of factors influencing the success of the company. What are the most remarkable aspects that reveal the essence and varieties production costs? What does business efficiency depend on?

A little 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 a product cannot be produced). The lower they are, the more economically profitable the business is.

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

According to the first approach, production costs are total population all actual expenses associated with the business (purchase of raw materials, rental of premises, payment utilities, personnel compensation, etc.). The “economic” methodology also involves the inclusion of those costs, the value of which is directly related to the company’s lost profit.

In accordance with popular theories adhered to by Russian marketers, 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 growth or reduction in the rate of production of goods.

Fixed costs

Fixed production costs are, most often, such expense items as rent of premises, remuneration of administrative personnel (managers, executives), 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, enterprise economists calculate average production costs from those that are considered constant. They are calculated based on the volume of costs per unit of manufactured goods. Typically, as production volumes increase, the average cost “schedule” decreases. That is, as a rule, the greater the productivity of the factory, the cheaper the unit product.

Variable costs

The enterprise's production costs related to variables, in turn, are very susceptible to changes in the volume of output. These include the costs of purchasing raw materials, paying for electricity, and compensating staff at the specialist level. This is understandable: more material is required, energy is wasted, new personnel are needed. A graph showing the dynamics of variable costs is usually not constant. If a company is just starting to produce something, then these costs usually grow more rapidly in comparison with the rate of increase in production.

But as soon as the factory reaches a sufficiently intensive turnover, then variable costs, as a rule, do not grow so actively. As with fixed costs, an average is often calculated for the second type of cost - again, in relation to unit output. The combination of fixed and variable costs is the total cost of production. Usually they are simply added together mathematically when analyzing a company's economic performance.

Costs and depreciation

Phenomena such as depreciation and the closely related term “wear and tear” are directly related to production costs. By what mechanisms?

First, let's define what wear is. This, according to the interpretation widespread among Russian economists, is a decrease in the value of production resources. Wear and tear can be physical (when, for example, a machine or other equipment simply breaks down or cannot withstand the previous rate of production 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- These are the fixed costs of production. Physical - variables. The costs associated with maintaining production volumes of goods subject to wear and tear of equipment form the same depreciation charges.

As a rule, this is associated with the purchase new technology or investments in repairing the current one. Sometimes - with a change in technological processes (for example, if a machine producing spokes for wheels breaks down at a bicycle factory, their production may be outsourced temporarily or on an indefinite basis, which, as a rule, increases the cost of producing finished products).

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

As a rule, more experienced craftsmen handle equipment more carefully than beginners, and therefore it may make sense to spend money on inviting expensive, experienced highly qualified specialists (or invest in training young people). These costs may be lower than investments in depreciation of equipment subject to intensive use by inexperienced beginners.

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

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 company and what is its size. Based on these two criteria, various organizational and economic forms are distinguished entrepreneurial activity. This includes public and private (sole proprietorships, 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 amount and structure of costs 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 economic activity at the micro level.

Production costs - These are expenses, monetary expenditures that must be made to create a product. For an enterprise (firm), they act as payment for acquired factors of production.

The majority of production costs comes from the use of production resources. If the latter are used in one place, they cannot be used in another, since they have such properties as rarity and limitation. For example, money spent on buying a blast furnace to make iron cannot be spent on producing ice cream at the same time. As a result, by using a resource in a certain way, we lose the opportunity to use this resource in some other way.

Due to this circumstance, any decision to produce something necessitates the refusal to use the same resources for the production of some other types of products. Thus, costs represent opportunity costs.

Opportunity Cost- these are the costs of producing a product, assessed 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: “explicit” and “implicit”.

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

Explicit costs include: wage workers (cash payment to workers as suppliers of the factor of production - labor); cash costs for the purchase or payment for the rental of machines, machinery, equipment, buildings, structures (cash payments to capital suppliers); payment of transportation costs; utility bills (electricity, gas, water); payment for services of banks and insurance companies; payment to suppliers of material resources (raw materials, semi-finished products, components).

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:

1. Cash payments that a company could receive if it used its resources more profitably. This can also include lost profits (“lost opportunity costs”); the wages that an entrepreneur could earn by working somewhere else; interest on capital invested in securities; rent payments for land.

2. Normal profit as the minimum remuneration to an entrepreneur that keeps him in the chosen industry.

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 normal profit, then he will move his capital to industries that give at least normal profit.

3. 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). For a peasant who owns 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 activities), the implicit costs will be the wages that he could receive for the same time while working for hire at any company or enterprise.

Thus, Western economic theory includes the income of the entrepreneur in production costs. Moreover, such income is considered as a payment for risk, which rewards the entrepreneur and encourages him to keep his financial assets within the boundaries of this enterprise and not divert them for other purposes.

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

Economic or opportunity costs in modern theory are considered to be the costs of a company incurred in the conditions of making the best economic decision on the use of resources. This is the ideal to which a company should strive. Of course, the real picture of the formation of total (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. IN accounting costs The entrepreneur's profit is not included at all.

Production costs, which are used by economic theory, compared with accounting distinguishes the assessment of internal costs. The latter are associated with costs that are incurred through the use of own products in the production process. For example, part of the harvested crop is used to sow the company's land. 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 setting the price of a released product, costs of this kind should be assessed at the market price of that resource.

Internal costs - these are associated with the use of one’s own products, which turn into a resource further production companies.

External costs - This is the expenditure of money that is made to acquire resources that are the property of those who are not the owners of the company.

The production costs that are incurred in the production of a product can be classified not only depending on what resources are used, be it the resources of the company or the resources that had to be paid for. Another classification of costs is 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 quantity of all employed resources.

Fixed costs(FC, fixed costs)- these are costs that do not depend in the short term on how much the company produces. They represent the costs of its constant factors of production.

Fixed costs are associated with the very existence of the firm's production equipment and must therefore be paid, even if the firm does not produce anything. A firm can avoid the costs associated with its fixed factors of production only by completely ceasing its activities.

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

These include costs of raw materials, fuel, energy, transport services, etc. The majority of variable costs typically come from labor and materials. Since the costs of variable factors increase as output increases, variable costs also increase with output.

General (gross) costs for the quantity of goods produced - these are all the costs for this moment the time required to produce a particular product.

In order to more clearly determine the possible production volumes at which the company guarantees itself against excessive growth of production costs, the dynamics of average costs is examined.

There are average constants (AFC). average variables (AVC) PI average general (PBX) costs.

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

AFC = FC/Q.

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

AVC=VC/Q.

Average total costs (PBX) represent the ratio of total costs (TC)

to output volume:

ATS= TC/Q =AVC + AFC,

because TS= VC + FC.

Average costs are used when deciding 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 term. If the price is lower ATS, then the firm receives negative economics; profits and should consider permanent closure. Graphically this situation can be depicted as follows.

If average costs are lower market price, then the company can operate profitably.

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

Marginal cost(MS, marginal costs) - These are the costs associated with producing an additional unit of output.

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

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

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

The equilibrium point of the firm and maximum profit is reached when marginal revenue and marginal cost are equal.

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