The essence of costs. The economic essence of enterprise costs
The essence of production costs. In the process of producing goods and services, living and past work. At the same time, each company strives to obtain the greatest possible profit from its activities. To do this, the company tries to reduce its production costs, i.e. production costs.Production costs are the total labor costs to produce a product.
Cost classification:
- obvious costs- This opportunity cost, taking the form of direct (cash) payments to suppliers of factors of production and intermediate goods. Explicit costs include wages paid to workers, management salaries, commissions paid to trading firms, payments to banks and other financial service providers, legal fees, travel expenses, etc.;
- implicit(internal, implicit) costs. These include the opportunity costs of using resources owned by the owners of the firm (or owned by the firm as a legal entity). These costs are not provided for in contracts that require explicit payments, and therefore remain uncollected (in monetary form). Firms typically do not reflect implicit costs in their financial statements, but that doesn’t make them any less real.
- fixed costs. Costs associated with provision fixed costs, are called fixed costs.
- variable costs. Can be quickly and easily subject to change within the enterprise as the volume of production changes. Raw materials, energy, and hourly labor are examples of variable costs for most firms;
- sunk costs. Sunk costs have distinctive feature, which will allow them to be distinguished from other costs. Sunk costs are incurred by the company once and for all and cannot be returned even if the company completely ceases its activities in this area. If a firm plans to enter into some new line of business or to expand its operations, then the sunk costs associated with this decision are precisely the opportunity costs associated with starting new activity. As soon as the decision to incur costs of this kind is made, sunk costs cease to be alternative costs for the company, because it has once and for all lost the opportunity to invest these funds anywhere;
- average costs– costs per unit of production. They are used to set prices. Average fixed costs are determined by dividing total fixed costs by the number of products produced. Average variable costs are determined by dividing total variable costs by the number of products produced. Average total cost can be calculated by dividing the sum total costs on the quantity of products;
- marginal cost– additional or incremental costs associated with producing one more unit of output. Marginal costs help determine the maximum load above which production is ineffective. Using marginal costs, you can determine the minimum efficient size of an enterprise;
- distribution costs– costs associated with delivering products to the consumer.
Introduction
The starting point of the theory of market organization is usually considered production costs. All firms incur certain costs in the process of producing goods and services and selling them. The level of production costs is a key factor in a firm's decision about output volume and product price. The relevance of the topic under consideration is manifested in the following. The main motive for the activity of any company in market conditions is profit maximization. The real possibilities for realizing this strategic goal are in all cases limited by production costs and demand for the company's products. Since costs are the main limiter on profit and at the same time the main factor influencing the volume of supply, decision-making by the company’s management is impossible without an analysis of existing production costs and their value for the future. This applies to the release of already mastered products and to the transition to new products.
The purpose of the course work is to consider the problems of costs of Russian enterprises.
To achieve the goal in course work it is necessary to solve the following problems:
consider the concept and concepts of enterprise costs;
study the essence of fixed and variable costs;
characterize the average and marginal costs of the enterprise;
consider the classification of production costs at Russian enterprises;
describe the composition of costs included in the cost;
identify the cost structure of Russian enterprises;
characterize the main problems of enterprise costs in the Russian Federation;
determine areas for reducing enterprise costs.
Economic essence enterprise costs
Concept and concepts of enterprise costs
Costs are called “the monetary expression of the use of production resources, as a result of which the production and sale of products is carried out” Kazaryan, M.A. Economic theory / M.A. Kazaryan, S.G. Seryakov. - M.: Delo, 2011. - 108 p..
Costs were also studied by the classics of political economy: A. Smith introduced the concept of absolute costs, D. Ricardo - the author of the theory of comparative costs. By the term “costs” they understood the average social cost per unit, that is, what a separate unit of production cost at an average enterprise or what the average costs at all enterprises belonging to the industry are equal to. Production costs were defined by the classics as the price of production taking into account rental payments.
According to the Marxist concept, production costs are what a product costs a capitalist, namely the sum of expenses for the acquisition of means of production and labor (constant and variable capital). K. Marx distinguishes the actual costs of production of a commodity (labor costs), which form its value, from specifically capitalist costs. This distinction between production costs as labor costs and capital costs is one of the initial principles of the Marxist analysis of the process of capitalist reproduction Kirichenko, E.A. Economic theory (microeconomics) / E.A. Kirichenko, V.A. Shabashev. - Kemerovo: KemSU, 2010. - 97 p..
K. Marx's theory of costs is based on two fundamental categories - production costs and distribution costs. Production costs mean the costs of wages, raw materials and materials, this also includes depreciation of labor instruments, etc. Production costs are the production costs that must be incurred by the organizers of the enterprise in order to create goods and subsequently make a profit. In the cost of a unit of goods, production costs make up one of its two parts. Production costs are less than the cost of the product by the amount of profit.
The category of distribution costs is associated with the process of selling goods. Additional distribution costs are the costs of packaging, sorting, transportation and storage of goods. This type of distribution costs is close to production costs and, when included in the cost of goods, increases the latter. Additional costs are reimbursed after the sale of goods from the proceeds received. Net distribution costs - costs of trade (salaries of salespeople, etc.), marketing (study of consumer demand), advertising, costs of paying headquarters staff, etc. Net costs do not increase the cost of goods, but are reimbursed after sale from the profits created in the process of producing goods.
Speaking about the costs of production and circulation, K. Marx considered the process of formation of costs directly according to their main elements in production process. He abstracted from the problem of price fluctuations around value. In addition, in the twentieth century there was a need to determine changes in costs depending on the quantity of products produced Kirichenko, E.A. Economic theory (microeconomics) / E.A. Kirichenko, V.A. Shabashev. - Kemerovo: KemSU, 2010. - 98 p..
IN late XIX V. A number of new concepts are emerging. For marginalists (Menger, Wieser), costs appear as a psychological phenomenon based on marginal utility. In their view, the amount a firm pays for factors of production is determined by the marginal utility they have from the seller's point of view. The concept of costs in marginalist economic theory refers to an individual enterprise, the costs and income of which are considered as functions of the scale of production.
The Austrian theorist F. Wieser developed the subjective theory of opportunity costs, according to which the actual costs of producing a given product are equal to the highest utility of the benefits that society could have received if it had used the production resources expended differently. The translation of the views of marginalists onto a mathematical basis by representatives of the Austrian school contributed to the emergence of the theory of cost minimization.
Institutionalist cost theory is most clearly represented in the works of J. C. Clark (A Study of Overhead Cost Economics) and John A. Hobson. The first dealt with the problem of invoices, and also studied in detail Various types costs: individual and social, absolute, additional, financial, production, long-term and short-term. The merit of J. A. Hobson was that he introduced the concept of human costs, which are measured, in his opinion, by the quality and nature of labor efforts, the abilities of the persons making these efforts, as well as from the point of view of the distribution of labor in society.
Neoclassical concepts of production costs consider them as the sum of costs (fixed and variable) for the acquisition of factors of production.
In the last decade, the theory of transaction costs, developed by representatives of neo-institutionalism, has become widely known. This includes mainly distribution costs, i.e. the costs of selling goods (advertising, maintaining markets, etc.). The concept of transaction costs was introduced by the American economist R. Coase. According to K. Arrow, transaction costs in economics are similar to friction in physics. Neo-institutionalists believe that the function of the market is to save transaction costs, and its main advantage is the tendency to minimize the costs of each participant in the exchange for obtaining information.
23. Costs, their essence, structure and classification. Cost theories
Previous questions stated that costs are the main factor affecting supply.
Therefore, before deciding how much of a product to produce, a firm must analyze costs.
COSTS ARE PAYMENT FOR PURCHASED FACTORS OF PRODUCTION.
This indisputable truth is viewed by different economists from different positions and with different goals.
K. Marx connected the study of costs with the desire to explore the features of the exploitation of hired labor, which are reflected in value, and therefore in costs.
To produce goods, Marx believed, society must spend both living labor (necessary and surplus) and materialized labor, expressed in the cost of equipment, raw materials, fuel, etc.
These labor costs form the value of the product, which he called costs to society.
With cash proceeds after the sale of goods, the capitalist covers the costs of equipment, raw materials, fuel, energy Andpayment for the necessary labor. He does not pay for surplus labor.
This means that the costs incurred by the capitalist, i.e. his production costs, less costs to society (the cost of goods) by the amount of unpaid surplus labor. It is he who is the source of profit. Consequently, for Marx, profit is beyond costs.
In addition to production costs, Marx highlighted production costsscheniya, i.e., costs associated with the process of selling goods (see question 16).
Not all distribution costs take part in the formation of the value of a product, but only that part of them that is productive, that is, it represents a continuation of the production process in the sphere of circulation (transportation, storage, packaging, etc.).
Consequently, for Marx, not all costs are price-forming.
Unlike K. Marx, modern Western economists consider costs from the point of view of a business executive.
They believe that an entrepreneur expects income from all costs without exception. On this basis, they include the entrepreneur’s profit in costs, assessing it as a payment for risk.
In their theory, production costs, including normal average profit, are called economic, or togetherindirect costs.
In contrast, Marx believed that the sum of production costs (C + V) along with profit (R) forms production price.
In foreign literature there is a complex classification of costs.
DEPENDING ON THE INCREASE IN PRODUCTION VOLUME, costs are divided into fixed and variable.
Fixed costs(fixed cost - FQ - these are those that do not depend on the volume of production.
These include deductions for depreciation of buildings and structures, rental payments, administrative and management expenses, etc. These costs must be paid even if the enterprise is stopped.
Variable costs(variable cost - VQ - These are costs that depend on the quantity of products produced. They consist of costs of raw materials, materials, wages, etc. As production volume increases, they increase.
The division of costs into fixed and variable is conditional and depends on the period for which the analysis is carried out. So, for a long period all costs are variable, because over a long period all equipment can be replaced (a new plant is bought or an old plant is sold, etc.).
The sum of fixed and variable costs forms gross, or are common, costs { total cost- TS).
Gross, variable and fixed costs can be presented graphically (Fig. 10).
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Costs
13 6 9 Production volume
TO MEASURE THE COSTS OF PRODUCING A UNIT OF PRODUCTION, the categories of average total ( average total cost - ATS), average constants( average fixed cost - A.F.C. ) and average variable costs( average variable cost - AVC ).
Average costs are important for determining the profitability of a company: if the price is equal to average costs, then the company has a zero effect and there is no profit.
If the price is less than average cost, then the firm incurs losses and may go bankrupt.
If price is greater than average cost, then the firm has a profit equal to this difference.
Average total costs are equal to the quotient of total costs divided by the number of products produced:
ATS = - . Q
Average fixed costs are determined by dividing total fixed costs by the number of products produced:
A.F.C. = -. Q
Average variable costs are formed by dividing total variable costs by the number of products produced:
AVC =
DEPENDING ON THE METHOD OF COST ASSESSMENT, accounting and opportunity costs are distinguished.
Accounting costs- this is the actual consumption of production factors for the production of a certain amount of products at their acquisition prices.
But the same resources can be used for various alternative purposes. Therefore, there are opportunity costs, or opportunity costs. For example, by organizing the production of refrigerators, an entrepreneur misses the opportunity to produce cars and the benefits associated with this.
Opportunity Cost- this is the amount of money that can be obtained from the most profitable of all possible alternative uses of resources.
FROM THE POINT OF RECEIPT OF FUNDS, costs are divided into external and internal (explicit and implicit).
External costs- these are the financial costs of a company for the purchase of raw materials, equipment, transport, energy “from the outside,” i.e., suppliers who are not part of the enterprise.
Internal costs- these are unpaid costs for your own and independently used resource.
For example, a company uses part of the grain harvest to sow its land. The company uses such grain for its internal needs and does not pay for it.
IN ORDER TO DETERMINE THE MAXIMUM OUTPUT that a firm can produce, marginal costs are calculated.
Marginal cost(marginal cost - MS) - is the additional cost of producing each additional unit of output compared to a given output:
They are important for determining the firm's strategy. Since fixed costs are constant, marginal costs are equal to the increase in variable costs, i.e. raw materials, labor, etc.
The essence of production costs. In the process of producing goods and services, living and past labor is expended. At the same time, each company strives to obtain the greatest possible profit from its activities. To do this, the company tries to reduce its production costs, i.e. production costs.
Production costs are the total labor costs to produce a product.
Cost classification:
1) obvious costs- These are opportunity costs that take the form of direct (monetary) payments to suppliers of factors of production and intermediate goods. Explicit costs include wages paid to workers, management salaries, commissions paid to trading firms, payments to banks and other financial service providers, legal fees, travel expenses, etc.;
2) implicit(internal, implicit) costs. These include the opportunity costs of resource use, owned by the owners firms (or owned firms, such as legal entity). These costs are not provided for in contracts that require explicit payments, and therefore remain uncollected (in monetary form). Typically, firms do not reflect implicit costs in their financial statements, but this does not make them any less real.
3) fixed costs. The costs associated with providing fixed costs are called fixed costs.
4) variable costs. Can be quickly and easily subject to change within the enterprise as the volume of production changes. Raw materials, energy, and hourly labor are examples of variable costs for most firms;
5) sunk costs. Sunk costs have a distinctive feature that makes them stand out from other costs. Sunk costs are incurred by the company once and for all and cannot be returned even if the company completely ceases its activities in this area. If a firm plans to enter into a new line of business or to expand its operations, the sunk costs associated with this decision are precisely the opportunity costs associated with starting a new activity. As soon as the decision to incur costs of this kind is made, sunk costs cease to be alternative costs for the company, because it has once and for all lost the opportunity to invest these funds anywhere;
6) average costs– costs per unit of production. They are used to set prices. Average fixed costs are determined by dividing total fixed costs by the number of products produced. Average variable costs are determined by dividing total variable costs by the number of products produced. Average total cost can be calculated by dividing the sum of total costs by the quantity produced;
7) marginal cost– additional or incremental costs associated with producing one more unit of output. Marginal costs help determine the maximum load above which production is ineffective. Using marginal costs, you can determine the minimum efficient size of an enterprise;
8) distribution costs– costs associated with delivering products to the consumer.
MARKETING
Marketing- view human activity aimed at satisfying needs and wants through exchange.
Concept marketing is built on seven constituent elements:
1) needs. The original idea underlying marketing is the idea of human needs. Need is a person’s sense of lack of something. People's needs are diverse and complex. Among the main ones are the needs for food, clothing, sleep, self-expression, communication, etc. If the need is not satisfied, the person feels destitute and unhappy. And the more this or that need means to him, the more deeply he worries;
2) needs. Need is a need that has taken a specific form in accordance with the cultural level and personality of the individual. Needs are expressed in objects that can satisfy the need in a way that is inherent in the cultural structure of a given society. As society progresses, the needs of its members also grow. People encounter more and more objects that awaken their curiosity, interest and desire. Manufacturers, for their part, take targeted actions to stimulate the desire to own goods. They try to form a connection between what they put out and people's needs. A product is promoted as a means of satisfying one or a number of specific needs;
3) requests. A request is a need backed by purchasing power. People's needs are almost limitless, but the resources to satisfy them are limited. So a person will choose those goods that will give him the greatest satisfaction within the limits of his financial capabilities;
4) goods. A product is anything that can satisfy a want or want. For example, a woman feels the need to look beautiful. We call all products that can satisfy this need the product range of choice. This range includes cosmetics, new clothes, spa tanning, cosmetologist services, plastic surgery etc. Not all of these goods are desired to the same degree. Most likely, goods and services that are more accessible and cheaper will be purchased first, such as cosmetical tools, clothes or a new haircut;
5) exchange. Marketing occurs when people decide to satisfy their needs and wants through exchange. Exchange is the act of receiving a desired object from someone and offering something in return;
6) deal. A transaction is a commercial exchange of value between two parties. The transaction presupposes the presence of several conditions: 1) two valuable objects; 2) agreed upon conditions for its implementation; 3) the agreed time of commission; 4) agreed upon venue. As a rule, the terms of the transaction are supported and protected by law. A transaction must be distinguished from a simple transfer. When transferring, party A transfers object X to party B without receiving anything in return. Transfers relate to gifts, subsidies, charitable events, and are also a form of exchange;
7) market. The concept of “transaction” directly leads us to the concept of “market”. Market is a set of existing and potential buyers goods, sales of commercial products.
ACCOUNTING COSTS
The essence of accounting costs. The value of resources used in production can be expressed by the price at which the enterprise purchased them on the market. In this case, costs represent the amount of payments that the company made to suppliers and its employees. All payments must be recorded in accounting documents. This method of measuring costs is called accounting. The costs estimated with its help are called accounting costs.
Structure of accounting costs. The main items that are included in accounting costs:
1) labor costs ( wage employees, payments under contracts, etc.);
2) material costs(raw materials, materials, energy, fuel, components, etc.);
3) depreciation - deductions for existing legislative norms in the field of wear and tear of equipment, buildings, structures;
4) contributions for social needs (pension, medical, insurance funds);
5) other costs (commission payments to the bank, loan interest, lease payments, taxes). The essence of the accounting approach to estimating resource costs is to answer the question: how much will the firm pay to produce this good? This is a retrospective assessment based on the accounting of transactions carried out by the enterprise.
The amount of accounting costs. Knowing the exact amount of accounting costs serves as a reference point for determining whether an enterprise is profitable or unprofitable. To do this, it is enough to compare accounting costs with the amount of company income. Economic sense Such accounting analysis is very important. Only enterprises that are profitable in the long term are able to maintain their place in the market. Long-term losses lead to inevitable bankruptcy.
The methodology for calculating accounting costs is standardized and therefore applicable for an objective assessment of the state of affairs of the enterprise. In Russia, the standard is mandatory for all enterprises accounting established by law and controlled by the tax and banking industries. A planned economy differs from a market economy, therefore accounting in our country differs from accounting in other countries. However, in last years The main trend in the development of accounting in Russia is to bring its rules closer to world standards.
The level of accounting costs does not always allow us to correctly judge financial condition at the enterprise. Only in a competitive market can price fulfill information function. Therefore, accurate measurement of costs is only possible when all resources expended are valued at their market price. This doesn't always happen.
The disadvantage of the accounting method is that it includes the costs only of those resources that the enterprise acquires from outside (raw materials, materials). These are called explicit costs. Explicit costs are reflected in cash payments from enterprise accounts to resource suppliers.
Some resources may already be owned by the enterprise. They do not need to be purchased, which means that the corresponding costs are not reflected in accounting documents. The costs of these resources are called implicit costs.
Related information.
Costs of purchasing used production factors are called production costs. Costs are the expenditure of resources in their physical, natural form, and costs are the valuation of the costs incurred.
From the point of view of an individual entrepreneur (firm), individual production costs are identified, which are the costs of a specific economic entity. The costs incurred for the production of a certain volume of some product, from the point of view of the entire national economy, are social costs. In addition to the direct costs of producing any range of products, they include the costs of protecting environment, training of qualified labor, fundamental R&D and other costs.
There are production costs and distribution costs. Production costs are costs directly associated with the production of goods or services. Distribution costs are the costs associated with the sale of manufactured products. They are divided into additional and net distribution costs. The first include the costs of bringing manufactured products to the direct consumer (storage, packaging, packing, transportation of products), which increase the final cost of the product; the second are expenses associated with changing the form of value in the process of purchase and sale, converting it from commodity to monetary (wages of sales workers, advertising costs, etc.), which do not form a new value and are deducted from the cost of the product.
The economic understanding of costs is based on the problem of limited resources and the possibility of their alternative use. The use of resources in this production process excludes the possibility of their use for another purpose. The choice of certain resources for the production of any good means the impossibility of producing some alternative good. The economic, or opportunity, cost of any resource selected for use in a production process is equal to its best-case value. possible options use.
From the perspective of an individual firm, economic costs are the costs that the firm must bear in favor of the supplier of resources in order to divert these resources from their use in alternative industries. Such costs can be both external and internal. Costs in cash that a company makes in favor of suppliers of labor services, fuel, raw materials, auxiliary materials, transport and other services are called external (explicit) costs. In this case, the resource providers are not the owners of the firm.
At the same time, the company can use its own resources. In this case, costs are also inevitable. The costs of your own and independently used resource are unpaid, or internal (implicit), costs. The company considers them as the equivalent of those cash payments that would be received for an independently used resource with its most optimal use.
The minimum wage required to keep someone operating in a given line of business is called normal profit.
From the perspective of the accounting approach, production costs should include all real, actual expenses incurred in cash. These could be workers' wages; rent for buildings, structures, machines, equipment; payment of transportation costs; payment for services of banks, insurance companies, etc. General scheme classification of production costs is presented in Appendix A.
From the standpoint of the economic approach, production costs should include not only actual costs incurred in cash, but also costs not paid by the company, costs associated with the lost opportunity of the optimal use your resources. According to this approach, production costs should take into account all costs: external and internal, including normal profit in the latter.
Implicit Implicit (internal) costs. costs cannot be identified with the so-called sunk costs. Sunk costs are costs that are incurred by the company once and cannot be returned under any circumstances. If, for example, the owner of an enterprise incurs certain monetary expenses for the design of an external sign for the enterprise, then when selling such an enterprise, its owner is prepared in advance to incur certain losses associated with the cost of the inscription produced. Sunk costs are not considered alternative costs; they are not taken into account in the company’s current costs associated with its production activities.
There is also such a criterion for classifying costs as the time intervals during which certain business decisions are made.
The costs that a firm incurs when producing a given volume of output depend not only on the prices of the factors of production used, but also on which factors (resources) are used and in what quantities. The quantity of some resources (human labor, fuel, raw materials, auxiliary materials, etc.) and their combination can be changed relatively quickly; the number of others (for example, the production capacity of a machine-building plant) can be changed over a fairly long period of time.
Depending on the time spent on changing the amount of resources used in production, short- and long-term periods in the company’s activities are distinguished.
The short-term period is the period of time during which the firm is unable to change its production capacity. It can influence the progress and effectiveness of production only by changing the intensity of use of its capacities. During this period, the company can quickly change its variable factors - the amount of labor, raw materials, auxiliary materials, fuel.
Accordingly, costs in this period are divided into fixed and variable.
Fixed costs- these are costs that do not depend on the volume of production; their value remains constant when the volume of production changes. It is generally accepted in practice to define fixed costs as overhead expenses. Fixed costs are associated with the direct existence of the enterprise; even in cases where the enterprise does not produce anything, they must be paid. These include: lease payments, depreciation, salaries of senior management personnel and lost implicit expected interest on invested capital, etc.
Variable costs are costs that depend on the volume of production. Direct costs for raw materials, labor and so on. vary depending on the scale of activity. Overhead costs such as reseller commissions, telephone conversations, spending on office supplies increases with business expansion, and therefore in this case belongs to the category of variable costs. However, for the most part, a firm's direct costs are always classified as variable, and overhead costs are classified as fixed.
The long-term period is a time period during which the firm is able to change the amount of all resources used, including production capacity. At the same time, this period should be sufficient in duration for some firms to be able to leave this industry, while others, on the contrary, to enter it.