Costs. Production cost formulas

The sum of all costs associated with the manufacture of a product is called cost. To make the cost of a product lower, it is necessary, first of all, to reduce production costs. To do this, it is necessary to break down the amount of expenses into components, for example: raw materials, supplies, electricity, wages, rent of premises, etc. It is necessary to consider each component separately and reduce costs for those expense items where possible.

Reducing costs in the production cycle is one of the important factors in the competitiveness of a product on the market. It is important to understand that it is necessary to reduce costs without compromising the quality of the product. For example, if according to technology the steel thickness should be 10 millimeters, then you should not reduce it to 9 millimeters. Consumers will immediately notice excessive savings, and in this case, a low price for a product will not always be a winning position. Competitors with more high quality there will be an advantage, despite the fact that their price will be slightly higher.

Types of production costs

From an accounting point of view, all costs can be divided into the following categories:

• direct costs;
• indirect costs.

Direct costs include all fixed costs that remain unchanged with an increase/decrease in the volume or quantity of goods produced, for example: rent office building for management, loans and leasing, payroll for top management, accounting, executives.

Indirect costs include all expenses incurred by the manufacturer during the manufacture of goods throughout all production cycles. These may be costs for components, materials, energy resources, workers' compensation fund, workshop rental, and so on.

It is important to understand that indirect costs will always increase as production capacity increases and, as a result, the quantity of goods produced will increase. Conversely, when the quantity of goods produced decreases, indirect costs decrease.

Efficient production

Each enterprise has a financial production plan for a certain period of time. Production always tries to stick to the plan, otherwise it threatens to increase production costs. This is due to the fact that direct (fixed) costs are distributed over the number of products produced over a certain period of time. If production does not fulfill the plan and produces less quantity of goods, then the total amount of fixed costs will be divided by the quantity of goods produced, which will lead to an increase in its cost. Indirect costs do not have a strong influence on the formation of cost when the plan is not fulfilled or, conversely, it is overfulfilled, since the number of components or energy expended will be proportionally greater or less.

The essence of any manufacturing business is making a profit. The task of any enterprise is not only to manufacture a product, but also to effectively manage it so that the amount of income is always greater than total costs, otherwise the enterprise cannot be profitable. How a big difference between the cost of a product and its price, the higher the profitability of the business. Therefore, it is so important to conduct business while minimizing all production costs.

One of the key factors in reducing costs is the timely renewal of equipment and machine tools. Modern equipment is many times higher than similar machines and machines of past decades, both in energy efficiency and in accuracy, productivity and other parameters. It is important to go along with progress and modernize where possible. The installation of robots, smart electronics and other equipment that can replace human labor or increase line productivity is an integral part of a modern and efficient enterprise. In the long term, such a business will have advantages over its competitors.

Every organization strives to achieve maximum profit. Any production incurs costs for the purchase of factors of production. At the same time, the organization strives to achieve such a level that a given volume of production is provided at the lowest possible cost. The firm cannot influence the prices of resources. But, knowing the dependence of production volumes on the number of variable costs, costs can be calculated. Cost formulas will be presented below.

Types of costs

From an organizational point of view, expenses are divided into the following groups:

• individual (expenses of a particular enterprise) and social (costs of manufacturing a specific type of product incurred by the entire economy);
• alternative;
• production;
• are common.

The second group is further divided into several elements.

Total expenses

Before studying how costs and cost formulas are calculated, let's look at the basic terms.

Total costs (TC) are the total costs of producing a certain volume of products. In the short term, a number of factors (for example, capital) do not change, and some costs do not depend on output volumes. This is called total fixed costs (TFC). The amount of costs that changes with output is called total variable costs (TVC). How to calculate total costs? Formula:

Fixed costs, the calculation formula for which will be presented below, include: interest on loans, depreciation, insurance premiums, rent, salary. Even if the organization does not work, it must pay rent and loan debt. Variable expenses include salaries, costs of purchasing materials, paying for electricity, etc.

With an increase in output volumes, variable production costs, the calculation formulas for which were presented earlier:

• grow proportionally;
• slow down growth when reaching the maximum profitable production volume;
• resume growth due to violation of the optimal size of the enterprise.

Average expenses

Wanting to maximize profits, the organization seeks to reduce costs per unit of product. This ratio shows a parameter such as (ATC) average cost. Formula:

ATC = TC\Q.

ATC = AFC + AVC.

Marginal costs

The change in total costs when production volume increases or decreases by one unit shows marginal costs. Formula:

From an economic point of view, marginal costs are very important in determining the behavior of an organization in market conditions.

Relationship

Marginal cost must be less than total average cost (per unit). Failure to comply with this ratio indicates a violation of the optimal size of the enterprise. Average costs will change in the same way as marginal costs. It is impossible to constantly increase production volume. This is the law of diminishing returns. At a certain level, variable costs, the calculation formula for which was presented earlier, will reach their maximum. After this critical level, an increase in production volumes even by one will lead to an increase in all types of costs.

Example

Having information about the volume of production and the level of fixed costs, it is possible to calculate all existing types of costs.

Without engaging in production, the organization incurs fixed costs of 60 thousand rubles.

Variable costs are calculated using the formula: VC = TC - FC.

If the organization is not engaged in production, the amount of variable costs will be zero. With an increase in production by 1 piece, VC will be: 130 - 60 = 70 rubles, etc.

Marginal costs are calculated using the formula:

MC = ΔTC / 1 = ΔTC = TC(n) - TC(n-1).

The denominator of the fraction is 1, since each time the volume of production increases by 1 piece. All other costs are calculated using standard formulas.

Opportunity Cost

Accounting expenses are the cost of the resources used in their purchase prices. They are also called explicit. The amount of these costs can always be calculated and justified with a specific document. These include:

• salary;
• equipment rental costs;
• fare;
• payment for materials, bank services, etc.

Economic costs are the cost of other assets that could be obtained from alternative uses of resources. Economic costs = Explicit + Implicit costs. These two types of expenses most often do not coincide.

Implicit costs include payments that a firm could receive if it used its resources more profitably. If they were bought in a competitive market, their price would be the best among the alternatives. But pricing is influenced by the state and market imperfections. Therefore, the market price may not reflect the true cost of the resource and may be higher or lower than the opportunity cost. Let us analyze in more detail the economic costs and cost formulas.

Examples

An entrepreneur, working for himself, receives a certain profit from his activities. If the sum of all expenses incurred is higher than the income received, then the entrepreneur ultimately suffers a net loss. It, together with net profit, is recorded in documents and refers to explicit costs. If an entrepreneur worked from home and received an income that exceeded his net profit, then the difference between these values ​​would constitute implicit costs. For example, an entrepreneur receives a net profit of 15 thousand rubles, and if he were employed, he would have 20,000. In this case, there are implicit costs. Cost formulas:

NI = Salary - Net profit = 20 - 15 = 5 thousand rubles.

Another example: an organization uses in its activities premises that belong to it by right of ownership. Explicit expenses in this case include the amount of utility costs (for example, 2 thousand rubles). If the organization rented out this premises, it would receive an income of 2.5 thousand rubles. It is clear that in this case the company would also pay utility bills monthly. But she would also receive net income. There are implicit costs here. Cost formulas:

NI = Rent - Utilities = 2.5 - 2 = 0.5 thousand rubles.

Returnable and sunk costs

The cost for an organization to enter and exit a market is called sunk costs. No one will return the costs of registering an enterprise, obtaining a license, or paying for an advertising campaign, even if the company ceases operations. In a narrower sense, sunk costs include costs for resources that cannot be used in alternative ways, such as the purchase of specialized equipment. This category of expenses does not relate to economic costs and does not affect the current state of the company.

Costs and price

If the organization's average costs are equal to the market price, then the firm makes zero profit. If favorable conditions increase the price, the organization makes a profit. If the price corresponds to the minimum average cost, then the question arises about the feasibility of production. If the price does not cover even the minimum variable costs, then the losses from the liquidation of the company will be less than from its functioning.

International distribution of labor (IDL)

The world economy is based on MRI - the specialization of countries in the production individual species goods. This is the basis of any type of cooperation between all states of the world. The essence of MRI is revealed in its division and unification.

One production process cannot be divided into several separate ones. At the same time, such a division will make it possible to unite separate industries and territorial complexes and establish interconnections between countries. This is the essence of MRI. It is based on the economically advantageous specialization of individual countries in the production of certain types of goods and their exchange in quantitative and qualitative ratios.

Development factors

The following factors encourage countries to participate in MRI:

• Volume of the domestic market. U large countries there is greater opportunity to find the necessary factors of production and less need to engage in international specialization. At the same time, market relations are developing, import purchases are compensated by export specialization.
• The lower the state's potential, the greater the need to participate in MRT.
• High provision of the country with mono-resources (for example, oil) and low level provision of mineral resources encourages active participation in MRI.
• The greater the share of basic industries in the structure of the economy, the less the need for MRI.

Each participant finds economic benefit in the process itself.

Accounting costs – the cost of expended resources in the actual prices of their acquisition. The actual cash costs incurred are recorded and are equal to the cost of production.

Economic costs – This is the cost of other benefits (goods and services) that could be obtained with the most profitable alternative use of resources. That is, economic costs include not only actual costs, but also those incomes that you will lose by choosing this investment option own funds and use of your working time.

Economic costs are also called opportunity costs or opportunity costs (this indicates that the entrepreneur has rejected alternative options for investing resources).

Economic costs = Explicit (accounting) + Implicit costs

Accounting profit – This is the difference between revenue received and accounting (explicit) costs.

Economic profit – it is the difference between revenue received and economic costs. It is often called excess profit, because... it exceeds the average accounting profit. Its receipt stimulates the influx of resources into a particular area of ​​activity, which leads to an increase market supply products, as a consequence of this - a decrease in the equilibrium price and the disappearance of positive profit, reducing it to zero.

There is the following relationship between accounting and economic profit:

Revenue = Explicit costs + Implicit costs + Economic profit

Explicit costs (external) – These are opportunity costs that take the form of cash payments to external (relative to a given firm) suppliers of factors of production. They are fully reflected in the accounting records of the enterprise.

Implicit costs (internal) – these are the opportunity costs of using resources owned by the company itself, i.e. costs not paid by it (lost profit).

All economic costs can be divided into two large groups: constants and variables.

Fixed costs – These are economic costs that do not change as production volume changes. They do not depend on the quantity of products produced, and the enterprise will bear them even if it does not produce anything at all.

Variable costs – These are economic costs that depend on the volume of production, i.e. change with changes in production volume.

Which costs are considered fixed and which are variable? It depends on the time period in which they are viewed. There are concepts of instantaneous, short and long periods.

In the instantaneous period – all costs are constant: the product is released onto the market, so it is no longer possible to change the volume of its production (it already exists), nor to change the costs of its production (the costs incurred are already in the past).

In the short term - There is a division of costs into fixed and 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. During this period, 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.).

A long period the functioning of a company is the time period during which the company can change the volumes (quantities) of all employed resources, including production capacity. All resources (as well as costs) are variable.

In the long run, the economic profits of all firms level out to zero and equilibrium is established in the industry.

The paradox of profit means that in the long run each firm earns only normal profits.

Monetary resources that need to be produced to produce products. For the firm, such expenses act as payment for acquired factors of production.

Costs are divided into fixed, variable and general. Fixed costs are those expenses that a company incurs as part of the production cycle. are determined by the enterprise independently. These costs will be present throughout all product production cycles at a given enterprise. Variable costs are expenses that are transferred in full to the finished product. Total costs are the expenses that a company incurs during the production stage. That is, total expenses represent constants and in total.

Also, costs are classified into accounting (explicit costs reflected in the balance sheet), and also alternative. Accounting expenses represent the price of resources used in their acquisition prices. Opportunity costs are both explicit and implicit costs together.

In addition, external, private and public costs are distinguished. External costs are those portions of the opportunity costs for which the company is not responsible. These costs are covered from the funds of other members of society. For example, if an enterprise pollutes nature through its work and is not responsible for this, then the costs of compensating for pollution will represent external costs to other enterprises or individuals. Private costs are the part of expenses that is generated directly by those who engage in this activity. Social costs are the sum of external and private costs.

Dividing costs into implicit and explicit

As already noted, from the division of costs into accounting and alternative costs, a classification into implicit and explicit follows.

Explicit costs of activity are determined by the total costs of the company to pay for the external resources used, that is, those resources that are not owned by the enterprise. For example, this could be raw materials, fuel, supplies, labor, and so on. Implicit costs determine the cost of internal resources, that is, resources that are owned by a given company.

An example of an implicit cost would be the salary an entrepreneur would receive if he were employed. The owner of capital property also incurs implicit costs, since he could sell his property and put the proceeds in the bank at interest, or rent out the property and receive income. When solving current problems, you should always take into account implicit costs, and if they are large enough, it is better to change your field of activity.

Thus, explicit costs are opportunity costs that take the form of payments to suppliers of intermediate goods and factors of production for the enterprise. This category of expenses includes wages workers, payment for resource suppliers, payment for services of insurance companies, banks, cash expenses for the purchase and rental of machines, equipment, structures and buildings.

Implicit costs are understood as the opportunity costs of using resources that belong directly to the enterprise, that is, unpaid costs. Thus, implicit costs include monetary payments that an enterprise could receive if it used its resources more profitably. For the owner of capital, implicit costs include the profit that the owner of the property could have received by investing capital in some other area of ​​​​activity, and not in this particular area.

IN modern conditions Cost accounting is the most important tool for enterprise management. The need to manage production costs grows as conditions become more complex economic activity and requirements for profitability are increasing. Enterprises enjoying economic independence must have a clear idea of ​​ROI various types finished products, the effectiveness of each decision made and their impact on financial results, as well as on the amount of costs. Before implementing cost management accounting, it is necessary to determine the terminology: how do costs, costs, expenses differ from each other?

All of these concepts should be distinguished in order to avoid a number of widespread mistakes in the approach to cost management. For example, controlling costs based on information from the income statement is not cost management. When finished goods inventories increase and sales decrease at the same time, expenses according to the company's income statement decrease and costs increase. However, managers may not respond to this adverse situation in a timely manner.

There are different interpretations of the term "cost". Thus, the “Modern Economic Encyclopedia” gives the following definition: “Costs -

1) expenses (expenses) expressed in monetary form for something;

2) resources “destroyed” during the production process in order to obtain certain products (goods and services);

3) include the cost of raw materials, main and auxiliary materials, purchased semi-finished products, depreciation, wages and social insurance contributions, administrative and other overhead costs and losses attributed to general costs.”

Costs are divided into “incoming” and “expired”. “Input costs (synonymous with costs) are those funds, resources that have been acquired, are available and are expected to generate income in the future.” Expired costs are identical to the concept of “expenses” and represent “resources spent during the reporting period and lost the ability to generate income in the future.”

They propose to understand costs as “explicit (actual) expenses of the organization. They are directly related to the fact of using raw materials, materials, third-party services for the production of products, works, services and their sale. Only at the moment of implementation, when the enterprise receives and determines its income, does it determine its costs associated with obtaining these incomes.”

Thus, we can say that the concept of “costs” includes three features:

* costs associated with production;

* targeted use of resources is assumed;

* there is a valuation with the help of which heterogeneous types of production resources are reduced to a monetary equivalent.

Three options for the relationship between resources and costs can be distinguished.

The first option is when resources are used (that is, costs are incurred) to create another resource. Primary resources turn into secondary resources, consumed resources turn into external ones. For example, from the primary resource of raw materials, a secondary resource, a semi-finished product, is produced, from which, in turn, an external resource is created - finished products.

Second option. Resources are used (that is, costs are incurred), but no visible new resource is created, or rather, it is difficult to identify and identify. For example, management employees consume resources, but the product that is created cannot always be seen.

The third option is when the costs represent a speculative use of resources. For example, opportunity costs, which represent lost profits due to the abandonment of some alternative option resource use.

Now let's look at the concept of "expenses". PBU 10/99 gives the following definition: “expenses are a decrease in economic benefits during the reporting period, occurring in the form of an outflow or depletion of assets or an increase in liabilities, leading to a decrease in capital not related to its distribution among shareholders.”

Therefore, costs arise in two cases.

Option one. The total amount of resources decreases due to an increase in production resources. Peculiarity this option is that in most cases financial resources are used to acquire productive resources. That is, first financial resources leave the organization, but production resources arrive in return. And when production resources leave the organization, there is a cost.

Option two. Financial resources leave the organization, but production resources do not enter the organization.

From the point of view of target validity, the resulting costs can be divided into:

* target costs that are determined by production processes;

* neutral costs, since they are neutral in relation to production processes.

Let's consider the relationship between the concepts of “costs” and “expenses”.

A significant part of expenses is also an expense, that is, costs and expenses correspond to each other. This is precisely targeted spending. The accumulated costs borne by the organization are aimed at calculating the cost of production and become an expense at the time of generating income from sales. However, some of the expenses are not costs. These are neutral expenses. Since the definition of costs includes a sign of their connection with production resources, the use of financial resources is not a cost. In addition, some of the costs may not result in expenses at all. For example, in the case of opportunity costs.

Now let's look at the concept of "costs". Costs are a very broad economic category, the definition of which has many different approaches. This is due, first of all, to the fact that there is no legally defined definition of this term. According to some experts, costs are a general indicator that includes the cost of all types of materials expended and services performed; others consider the category of “costs” as part of the costs, or as a monetary expression of the costs necessary for the enterprise to carry out only its production activities.

Let's determine what costs consist of. Most economists divide them into:

* production costs;

* distribution costs.

A modern economic dictionary defines these categories as follows: “Production costs are costs directly associated with the production of goods or services. Distribution costs are the costs associated with the sale and acquisition of goods, with their promotion in the sphere of circulation.”

Thus, most authors consider the concepts of “production costs” and “expenses” to be identical. The main disagreement is related to the term “distribution costs”: either costs include the use of resources for production and sales and, therefore, are more broad concept. Or costs are a more general concept, including production and distribution costs, while costs cover only production activities.

Analysis of the above terms shows that in financial accounting, the accrual principle is used to determine costs, that is, costs are charged to cost at the time of their occurrence, regardless of the fact of payment. In tax accounting, we apply both the accrual principle (Article 271, Chapter 25 of the Tax Code of the Russian Federation) and the cash principle (Article 273, Chapter 25 of the Tax Code of the Russian Federation). In management accounting, the basis for preparing information for various purposes can be based on both the accrual principle and the cash principle. In addition, for the convenience of decision making, conditional (alternative) costs are used.