Production costs. Types of production costs

Today's performance

Today's economic doctrine considers the subject of economics not the process of reproduction, as the classics of economic thought of the 18th-19th centuries saw it, but only the action of the market mechanism. The production process itself is reduced to the transformation of factors introduced into the transformation process into the release of a certain amount of economic good of a given name.

Production costs include the valuation of labor and capital services.

The service rating of the "land" factor is always considered to be zero. But when making calculations between firms, they take into account the need to preserve the contribution of previous participants in the chain of transformations of economic resources in the creation of economic benefits. Their contribution is accounted for under the name “raw materials, materials, semi-finished products, components and industrial services purchased from third parties.” By their nature, these are distribution costs, not production costs.

Cost classifications

Economic costs consist, firstly, of actual and “sunk” (eng. sunk costs). The latter are associated with costs that have left economic circulation forever without the slightest hope of return. Current costs are taken into account when making decisions, “sunk” costs are not. In accounting, the latter are classified as all kinds of insurance events, such as writing off bad debts.

Model of firm costs in the short run

Actual economic costs, in turn, consist of explicit and imputed ones. Explicit costs are necessarily expressed in settlements with counterparties and reflected in accounting registers. That's why they are also called accounting. Opportunity costs combine the company's costs, which are not necessarily expressed in settlements with counterparties. This is the cost of missed opportunities to otherwise apply the factors introduced into the process of transforming economic resources into economic benefits.

Economic costs are usually divided into cumulative, average, marginal (they are also called marginal costs) or closing, as well as on permanent And variables.

Aggregate costs include all the costs of producing a given volume of economic goods. Average costs are the total costs per unit of output. Margin costs are the costs that occur per unit change in output.

Permanent costs arise when the amount of use of one (or both) factors introduced into the transformation process cannot change. Thus variable costs arise when the company deals with factors introduced into the transformation process, the scope of which is not limited in any way.

Since the value of fixed costs necessarily ceases to depend on the volume of output, the definition is often distorted, speaking of fixed costs as independent of the volume of output, or even simply indicating a certain list of cost calculation items, which allegedly describes under any circumstances fixed costs. For example, salaries of office workers, depreciation, advertising, etc. Accordingly, costs are considered variables, the value of which directly depends on changes in output volume (raw materials, materials, wage directly production workers, etc.). This “implementation” of provisions on accounting into economics as a science is not only unlawful, but downright harmful.

Types of costs

The economic costs of producing a good depend on the amount of resources used and the prices of factor services. If an entrepreneur uses his own resources rather than purchased ones, prices must be expressed in the same units for precise definition amount of costs. The cost function describes the relationship between output and the minimum possible costs required to achieve it. Technology and input prices are usually taken as input in determining the cost function. A change in the price of a resource or the use of improved technology will affect the value minimum costs when producing the same volume of products. The cost function is related to production function. Minimizing costs for producing any given output depends in part on producing the maximum possible output given a given combination of factors.

External and internal costs

We can state that costs are an internal estimate of the costs a firm must make to divert the transformation factors it needs from alternative uses. These costs can be both external and internal. That cost estimate, which takes the form of payments to suppliers of labor and capital, is called external costs. However, the firm can use acquired resources in different technologies, which also creates costs. Costs associated with lost opportunities for other use of the acquired property economic resource, represent unpaid or internal costs.

Notes

see also

Literature

• Galperin V. M., Ignatiev S. M., Morgunov V. I. Microeconomics: In 2 volumes / General. ed. V. M. Galperina. - St. Petersburg: Economic School, 1999.
• Pindyck Robert S., Rubinfeld Daniel L. Microeconomics: Trans. from English - M.: Delo, 2000. - 808 p.
• Tarasevich L. S., Grebennikov P. I., Leussky A. I. Microeconomics: Textbook. - 4th ed., rev. and additional - M.: Yurayt-Izdat, 2005. - 374 p.
• Theory of the Firm / Ed. V. M. Galperina. - St. Petersburg: Economic School, 1995. (“Milestones of Economic Thought”; Issue 2) - 534 p.

Wikimedia Foundation.

2010. The manual is presented on the website in an abbreviated version. IN this option

tests are not given, only selected tasks and high-quality assignments are given, theoretical materials are cut by 30%-50%. I use the full version of the manual in classes with my students. The content contained in this manual is copyrighted. Attempts to copy and use it without indicating links to the author will be prosecuted in accordance with the legislation of the Russian Federation and the policies of search engines (see provisions on the copyright policies of Yandex and Google).

10.11 Types of costs

When we looked at the periods of production of a company, we said that in the short term the company can not change all the factors of production used, while in the long term all factors are variable.

1. It is precisely such differences in the possibility of changing the volume of resources when changing production volumes that forced economists to divide all types of costs into two categories:
2. fixed costs;

variable costs. Fixed costs (FC, fixed cost) are those costs that cannot be changed in the short term, and therefore they remain the same with small changes in the volume of production of goods or services. Fixed costs include, for example, rent for premises, costs associated with maintaining equipment, payments to repay previously received loans, as well as all kinds of administrative and other overhead costs. Let's say it is impossible to build a new oil refining plant within a month. So if next month plans to produce 5% more gasoline, this is only possible at existing production facilities and with existing equipment. In this case, a 5% increase in output will not lead to an increase in equipment maintenance and maintenance costs. production premises. These costs will remain constant. Only the amounts of wages paid, as well as the costs of materials and electricity (variable costs) will change.

The fixed cost graph is a horizontal line.

Average fixed costs (AFC, average fixed cost) are fixed costs per unit of output.

Variable costs(VC, variable cost) are those costs that can be changed in the short term, and therefore they grow (decrease) with any increase (decrease) in production volumes. This category includes costs for materials, energy, components, and wages.

Variable costs show the following dynamics depending on the volume of production: up to a certain point they increase at a killing pace, then they begin to increase at an increasing pace.

The variable cost schedule looks like this:

Average variable costs (AVC, average variable cost) are variable costs per unit of output.

The standard Average Variable Cost graph looks like a parabola.

The sum of fixed costs and variable costs is total costs(TC, total cost)

TC = VC + FC

Average total costs(AC, average cost) is the total cost per unit of production.

Also, average total costs are equal to the sum of average fixed and average variable costs.

AC = AFC + AVC

AC graph looks like a parabola

A special place in economic analysis occupy marginal costs. Marginal cost is important because economic decisions typically involve marginal analysis of available alternatives.

Marginal cost (MC, marginal cost) is the increment in total costs when producing an additional unit of output.

Since fixed costs do not affect the increment in total costs, marginal costs are also an increment in variable costs when producing an additional unit of output.

As we have already said, formulas with derivatives in economic problems are used when smooth functions are given, from which it is possible to calculate derivatives. When we are given individual points (discrete case), then we should use formulas with increment ratios.

The marginal cost graph is also a parabola.

Let's draw a graph of marginal costs together with graphs of average variables and average total costs:

The above graph shows that AC always exceeds AVC since AC = AVC + AFC, but the distance between them decreases as Q increases (since AFC is a monotonically decreasing function).

The graph also shows that the MC graph intersects the AVC and AC graphs at their minimum points. To justify why this is so, it is enough to recall the relationship between average and marginal values ​​already familiar to us (from the “Products” section): when the marginal value is below the average, then average value decreases with increasing volume. When the marginal value is higher than the average value, the average value increases with increasing volume. Thus, when the marginal value crosses the average value from bottom to top, the average value reaches a minimum.

Now let's try to correlate the graphs of general, average, and maximum values:

These graphs show the following patterns.

At the beginning of any course economic theory Much attention is paid to the study of costs. This is explained by the high importance of this element of the enterprise. In the long run, all resources are variable. In the short run, some resources remain unchanged, while others change to reduce or increase output.

In this regard, it is customary to distinguish two types of costs: fixed and variable. Their sum is called total costs and is most often used in various calculations.

Fixed costs

They are independent of the final release. That is, no matter what the company does, no matter how many clients it has, these costs will always have same value. On the chart they are in the form of a straight horizontal line and are designated FC (from English Fixed Cost).

Fixed costs include:

Insurance payments;
- salary of management personnel;
- depreciation deductions;
- payment of interest on bank loans;
- payment of interest on bonds;
- rent, etc.

Variable costs

They directly depend on the quantity of products produced. It is not a fact that the maximum use of resources will allow the company to obtain maximum profit, so the issue of studying variable costs is always relevant. On the graph they are depicted as a curved line and are designated VC (from English Variable Cost).

Variable costs include:

Raw material costs;
- costs of materials;
- electricity costs;
- fare;
- etc.

Other types of costs

Explicit (accounting) costs are all costs associated with the purchase of resources that are not owned by a particular company. For example, work force, fuel, materials, etc. Implicit costs are the cost of all resources that are used in production and that the firm already owns. An example is the salary of an entrepreneur, which he could receive as an employee.

There are also return costs. Refundable costs are those whose value can be recovered during the course of the company's activities. A company cannot receive non-refundable payments even if it completely ceases its activities. For example, costs associated with registering a company. In a narrower sense, sunk costs are those that have no opportunity cost. For example, a machine that was custom-made specifically for this company.

Those costs that a company incurs for the acquisition of all components of production and their use, expressed in monetary terms, are the costs of the company. Types of costs can be determined using two approaches - accounting and economic, containing different attitude to capital and its turnover.

Capital turnover

If an already completed capital turnover process is assessed, this is an accounting approach. But a look into the future of the company and its development is economic. This means that the types of costs clearly differentiate the calculation of existing expenses as a summing up of all activities that have occurred in a certain period of time, that is, a calculation of real expenses and ways to optimize them for the future.

Both of these approaches are simply necessary in the activities of each company, since each of them carries its own burden. Accounting and economic approaches have common goals aimed at the welfare of the company. Each of them (although its own cost function is considered) has a type, composition and value. All this must be objectively calculated using the analysis of various business items and prepared for inclusion in the diagram general development business.

Past and future

Accounting costs necessarily include production expense items: material costs, depreciation of equipment, wages, insurance and so on. Economic types costs are revealed various options, following which the company can use its funds, and there is always a choice. You can invest them in production to make a profit, you can put them in a bank at a favorable interest rate, or you can take a walk in Courchevel.

Of course, the same money is spent, that is, a certain amount, but with the same expenses the results will be completely different. Thus, the system of economic calculations reveals alternative costs, and their types are determined as a result of choice. What is opportunity cost? These are cash costs resulting from the summation of all expense items. They are always associated with some missed opportunities.

Opportunity Cost

Opportunity costs are expressed as the price of the best available opportunity; this is the main guideline for all commercial activities. It is with this that accounting expenses are compared, bypassing other types of costs. But, despite the fact that opportunity costs also represent the company's cash expenditures, they often do not coincide with them in reality. Here is an example: a company buys some resources from the state at a fixed price, and their price clearly relates to accounting costs. And on the main market, the same resources are sold at higher free prices. Failed expenses for them will be considered opportunity costs.

You can cite reverse example. The company acquires some part of the resources at the market price, and then other types of costs are considered, these will be obvious expenses - monetary. The other part of the resources involved in production is the property of the company and is implicit costs. To calculate the alternative costs in this case, you need to add up the implicit and explicit costs.

Types of costs have, in turn, smaller divisions. First, let's identify the main ones.

• Accounting. The cost of resources that have already been used.
• Economic. The amount of food that is sacrificed or abandoned for a certain amount of the main product.

Accounting involves classifying costs according to various principles.

• Basic. Costs for technological process and exploitation of labor.
• Invoices. Management and maintenance costs production process and sales of products.

The cost classification method involves even more ramifications.

• Direct costs. The costs of manufacturing only the main type of product (refer to cost).
• Indirect costs. They do not directly affect any type of product.

The volume of production also requires its own classification.

• Variable costs. The period of time is important; such calculations are not made for a long time. Direct dependence on volume and sales.
• variable costs.. They do not depend on the structure and volume of production, as well as on sales.

If a firm focuses on opportunity cost, rather than accounting cost, as the constraint on the supply of marketable goods, it can calculate its costs, determine its output, and anticipate supply. The company always strives to minimize opportunity costs. Types of costs are considered and calculated comprehensively so as not to reduce profits or reduce business activity.

Normal profit

The differences between economic and accounting costs are not only in their alternatives, but also in the methods of calculation. Here it is necessary to note the inclusion of the so-called normal profit in the economic costs of production. The types of costs considered in this case show an additional minimum income for the cost of the advance, and this operation is an indispensable condition for analyzing the activities of each enterprise. Accounting costs do not include this component of cost, because they cannot include anything unstable (assumed) in commercial performance.

They are a real and already established value, and even the structure of economic costs differ radically. They present only production costs that have already occurred. There are types of economic costs:

• variables;
• permanent;
• limit;
• average.

With the help of this division, the process of formation of all kinds of costs is traced and optimized, the composition and degree of participation of each is revealed structural element in increasing production output.

Types of production costs

Short term production activities can be analyzed by dividing all costs into variable and fixed. The latter are the costs in monetary terms for the resources of constant factors of production. Their value does not depend in any way on the volume of production; it is the operation of structures, buildings, equipment, administrative and management costs and rent. All this does not disappear anywhere even when production does not take place at all. Types of production costs include fixed costs as sunk costs.

And the variables are precisely those that make up the changing factors of production, that is, their value either grows or falls in connection with the volume: raw materials, materials, wages - these are variable costs. Although this division into variables and constants is very arbitrary, for long periods there is no time at all, since in this case all costs can be considered variable.

Other costs and their types

In sum, fixed and variable costs make up total, or total, which are the least for a company that are necessary to produce a certain amount of output. They can increase with production and are most often defined as a function of total costs. However, the average ones are most interesting for the company, because even with an increase in the total costs, those costs that fall on each unit of production are often hidden. The dynamics of average costs depends on the volume of production.

If it is small, then it has to bear the full weight of fixed costs. As production increases, fixed average costs decrease and variable average costs increase until the increase in variable costs is offset by a decrease in fixed average costs. After this, the process of growth in production volume is accompanied by an increase in average total costs. The category of marginal costs will help to calculate the reasons for the increase in variable costs with an increase in production volume. Costs and their types are a fairly extensive network in which each cell is important for good development business, which is simply impossible to do without sensible analysis.

Marginal cost

Marginal costs are calculated by subtracting all adjacent values ​​for total costs, since they are additionally required to produce one unit in excess of the assigned volume of production. Thus, the law of reduction to the limit of return of a given factor of production is reflected. And since each additional unit of a factor of production is less than the productivity of the previous one, the costs are greater. An increase in production volume involves all types of costs of the company, since it is associated with attracting additional factors production, which is why marginal costs rise. For some time, increasing costs can be repaid by increasing the productivity of all factors used, and then the average return increases, and average costs decrease.

But this process is possible if the sum of productive factors grows faster than the falling return of each additional unit of resource, that is, average costs decrease before marginal costs increase. That is why, before a firm decides to increase production, it first carefully compares average and marginal costs. If the marginal ones are below the average, the expansion of production will force the latter to decrease, and on the contrary, if the marginal ones are higher than the average, the volume of production must be reduced. The company must carefully monitor how not only total, but also average and marginal costs are formed, and compare this movement with the dynamics of the average and marginal product. Then the production technology will have an optimal structure that will ensure not only the formation of average minimum costs, but also a good growth rate of the marginal product and a rapid decrease in marginal labor costs.

Costs and profits

Minimizing costs creates the emergence and growth of production profits, which is facilitated by correct placement resources. Profit, of course, is the most important result this process, and the main activity of each firm is maximizing profits. This is exactly what the cost function is designed for. Types of costs must be considered, analyzed and optimized, because this is what helps make profit the criterion of the most effective use resources. Why is profit a key performance indicator? This goal is not always unconditional, since there are others: the welfare of the owners, stability in the market or winning new ones, while all types of total costs will certainly change the indicators.

Profit is the means by which all goals are successfully achieved and all tasks assigned to the company are solved; it is a kind of efficiency criterion. The interpretation of the concept of profit is very simple: it is the difference between costs and income. Here the above division into types of production costs is applicable, since income is also divided into marginal, average and total. The excess of income over costs - accounting profit - is a reflection of the difference between revenue from sales of products and the company's actual paid production costs. Economic profit is very important for a company when income exceeds all realized and possible but lost costs.

Example

For example, twenty million rubles were spent as advanced capital to open an outerwear tailoring shop. Revenue from sewing coats and fur coats amounted to forty million in the first year of operation. A non-accountant can easily calculate the profit - forty minus twenty, and he will be wrong. After all, the owner of this studio, with the start of the business, lost his wages from employment, the income that he could have received from dividends if he had invested in the purchase of shares. For example, this would amount to twelve million rubles. This means that the amount of costs for opening an atelier increases by exactly twelve million and amounts to thirty-two million rubles, and not twenty at all.

Accordingly, the profit decreased significantly - to eight million. Profit cleared of all types of costs (this also includes costs that arose during the economic choice) is called economic profit. This is the difference between revenue and opportunity cost. It is always less than the accounting profit by the amount of normal profit. In any case, this is a differential income - in addition to the gross costs (general) of the entire enterprise. It is precisely that profit, where the function of total costs is carefully considered, that has the form of economic profit, obtained as a result of the joint efforts of all fragments of production factors.

Cost Reimbursement

A market economy, by its conditions, influences the formation of the profit of any company; both production costs and demand for products are important here. The nature of demand also determines the characteristics of income generation, since the competition factor operates. By analyzing the income that a company receives, the indicator of additional (marginal) income from a unit of production is highlighted. Marginal revenue characterizes the payback of an additional unit and, combined with indicators of marginal costs, represents a cost guideline for the feasibility of expanding production.

The enterprise's gross income reimburses costs, being the main source of subsidies for commercial activities. From gross income and funds are generated to purchase materials, raw materials, pay wages, and a depreciation fund is also formed. It is in income that profit lies - the source of financing for all areas of the enterprise's activities. Making a profit is the goal, and the main activity of the firm is to maximize profits. This is an incentive to improve production, its technologies, to optimize production volumes and to minimize costs. The company must reach a certain volume precisely because in this case the minimum gross average costs will be formed, and then the maximum profit will be formed.

The goal of any enterprise is to earn maximum profit, which is calculated as the difference between income and total costs. That's why financial results firm directly depends on the size of its costs. This article describes the fixed, variable and total costs of production and how they affect the current and future operations of the enterprise.

What are production costs

Production costs refer to the monetary costs of acquiring all the factors used to manufacture a product. Most effective way production is considered to be the one that has minimum value costs of producing a unit of goods.

The relevance of calculating this indicator is associated with the problem of limited resources and alternative use, when the raw materials used can only be used for their intended purpose, and all other ways of their use are excluded. Therefore, at each enterprise, an economist must carefully calculate all types of production costs and be able to choose the optimal combination of factors used so that costs are minimal.

Explicit and implicit costs

Explicit or external costs include expenses incurred by the enterprise at the expense of suppliers of raw materials, fuel and service contractors.

Implicit, or internal, costs of an enterprise are the income lost by the company due to independent use resources belonging to it. In other words, this is the amount of money that the company could receive if the best way use of the existing resource base. For example, distract specific type material from the production of product A and use it to manufacture product B.

This division of costs is associated with different approaches to their calculation.

Methods for calculating costs

In economics, there are two approaches that are used to calculate the amount of production costs:

1. Accounting - production costs will include only the actual costs of the enterprise: wages, depreciation, social contributions, payments for raw materials and fuel.
2. Economic - in addition to real costs, production costs include the cost of lost opportunity optimal use available resources.

Classification of production costs

There are the following types of production costs:

1. Fixed costs (FC) are costs, the amount of which does not change in the short term and does not depend on the volume of manufactured products. That is, with an increase or decrease in production, the value of these costs will be the same. Such expenses include administration salaries and premises rental.
2. Average fixed costs (AFC) are fixed costs, which fall per unit of manufactured products. They are calculated using the formula:

• SPI = PI: Oh,
  where O is the volume of production output.

  From this formula it follows that average costs depend on the quantity of goods produced. If the company increases production volumes, then overhead costs will correspondingly decrease. This pattern serves as an incentive to expand activities.

3. Variable production costs (VCO) - costs that depend on production volumes and tend to change when decreasing or increasing total number manufactured goods (wages of workers, costs of resources, raw materials, electricity). This means that as the scale of activity increases, variable costs will increase. At first they will increase in proportion to the volume of production. On next stage the company will achieve cost savings when more production. And in the third period, due to the need to purchase more raw materials, variable production costs may increase. Examples of this trend are increased transport traffic finished products to the warehouse, payment to suppliers for additional batches of raw materials.

When making calculations, it is very important to distinguish between types of costs in order to calculate the correct cost of production. It should be remembered that variable production costs do not include real estate rental fees, depreciation of fixed assets, and equipment maintenance.

4. Average variable costs (AVC) - the amount of variable costs that an enterprise incurs to produce a unit of goods. This indicator can be calculated by dividing total variable costs by the volume of goods produced:

• SPRI = PR: O.

Average variable production costs do not change over a certain range of production volumes, but with a significant increase in the quantity of goods produced, they begin to increase. This is due to the high total costs and their heterogeneous composition.

5. Total costs (TC) - include fixed and variable production costs. They are calculated using the formula:

• OI = PI + Pri.

That is, you need to look for the reasons for the high indicator of total costs in its components.

6. Average total costs (ATC) - show the total production costs that fall per unit of product:

• SOI = OI: O = (PI + PrI): O.

The last two indicators increase as production volumes increase.

Types of variable expenses

Variable production costs do not always increase in proportion to the rate of increase in production volume. For example, an enterprise decided to produce more goods and for this purpose introduced a night shift. Payment for work at such times is higher, and, as a result, the company will incur additional significant costs.

Therefore, there are several types of variable costs:

• Proportional - such costs increase at the same rate as the volume of production. For example, with an increase in production by 15%, variable costs will increase by the same amount.
• Regressive - the growth rate of this type of cost lags behind the increase in product volumes; for example, with an increase in the quantity of manufactured products by 23%, variable costs will increase by only 10%.
• Progressive - variable costs of this type increase faster than the growth of production volume. For example, an enterprise increased production by 15%, and costs increased by 25%.

Costs in the short term

A short-term period is considered to be a period of time during which one group of production factors is constant and the other is variable. In this case, stable factors include the area of ​​the building, the size of the structures, and the amount of machinery and equipment used. Variable factors consist of raw materials, number of employees.

Costs in the long run

The long-term period is a period of time in which all used production factors are variables. The fact is that over a long period, any company can change its premises to larger or smaller ones, completely update equipment, reduce or expand the number of enterprises under its control, and adjust the composition of management personnel. That is, in the long term, all costs are considered as variable production costs.

When planning a long-term business, an enterprise must conduct a deep and thorough analysis of all possible costs and draw up the dynamics of future expenses in order to achieve the most efficient production.

Average costs in the long run

An enterprise can organize small, medium and large production. When choosing the scale of activity, a company must take into account key market indicators, projected demand for its products and cost required capacities production.

If a company's product is not in great demand and it is planned to produce a small quantity, in this case it is better to create a small production facility. Average costs will be significantly lower than with large-scale production. If a market assessment shows a high demand for a product, then it is more profitable for the company to organize large production. It will be more profitable and will have the lowest fixed, variable and total costs.

When choosing a more profitable production option, the company must constantly monitor all its costs in order to be able to change resources in a timely manner.