Division of labor costs and production costs. Production costs. Types of production costs. Fixed and variable costs

A company's costs are the totality of all costs of producing a product or service, expressed in monetary terms. In Russian practice they are often called cost. Each organization, regardless of what type of activity it is engaged in, has certain costs. The firm's costs are the amounts it pays for advertising, raw materials, rent, labor, etc. Many managers try to provide at the lowest possible costs effective work enterprises.

Let's consider the basic classification of a company's costs. They are divided into constants and variables. Costs can be considered in the short term and the long term ultimately makes all costs variable, since during this time some large projects may end and others begin.

The company's costs in short term can be clearly divided into constants and variables. The first type includes costs that do not depend on production volume. For example, deductions for depreciation of structures, buildings, insurance premiums, rent, salaries of managers and other employees related to higher management level and so on. Fixed costs of a company are mandatory costs that an organization pays even in the absence of production. on the contrary, they directly depend on the activities of the enterprise. If production volumes increase, then costs increase. These include costs of fuel, raw materials, energy, transport services, wages most of the enterprise’s employees, etc.

Why does a businessman need to divide costs into fixed and variable? This moment has an impact on the functioning of the enterprise in general. Since variable costs can be controlled, a manager can reduce costs by changing production volumes. And since the overall costs of the enterprise are ultimately reduced, the profitability of the organization as a whole increases.

In economics there is such a thing as opportunity costs. They are due to the fact that all resources are limited, and the enterprise has to choose one way or another to use them. Opportunity costs are lost profits. The management of the enterprise, in order to receive one income, deliberately refuses to receive other profits.

A firm's opportunity costs are divided into explicit and implicit. The first are those payments that the company would pay to suppliers for raw materials, for additional rent, etc. That is, their organization can guess in advance. These include cash costs for renting or purchasing machines, buildings, machinery, hourly wages of workers, payment for raw materials, components, semi-finished products, etc.

The implicit costs of a firm belong to the organization itself. These cost items are not paid to third parties. This also includes profit that could have been received for more favorable conditions. For example, the income that an entrepreneur can receive if he works in another place. Implicit costs include rent payments for land, interest on capital invested in securities, etc. Every person has this type of expense. Consider an ordinary factory worker. This person sells his time for a fee, but he could earn a higher salary in another organization.

So, in conditions market economy it is necessary to strictly monitor the organization’s expenses, it is necessary to create new technologies and train employees. This will help improve production and plan costs more effectively. This means it will lead to an increase in the company’s income.

(measured in monetary terms for simplicity) used in the process economic activity enterprises for (for) a certain time stage. Often in Everyday life people confuse these concepts (costs, expenses and expenses) with the purchase price of a resource, although such a case is also possible. Costs, costs and expenses have not historically been separated in the Russian language. In Soviet times, economics was an “enemy” science, so there was no significant further development in this direction, except for the so-called "Soviet economy".

In world practice, there are two main schools of understanding costs. This is a classic Anglo-American, which can include Russian and continental, which rests on German developments. The continental approach structures the content of costs in more detail and therefore is becoming more widespread throughout the world, creating a high-quality basis for tax, accounting and management accounting, costing, financial planning and controlling.

Cost Theory

Clarifying definitions of concepts

To the above definition, you can add more clarifying and delimiting definitions of concepts. According to the continental definition of the movement of value flows at different levels of liquidity and between different levels of liquidity, the following distinction can be made between the concepts of negative and positive value flows of organizations:

In economics, four basic levels of value flows can be identified with respect to liquidity (pictured from bottom to top):

1. Available capital level(cash, highly liquid funds (checks..), operational bank accounts)

payments And payments

2. Level of money capital(1. Level + accounts receivable - accounts payable)

Movement at this level is determined costs and (financial) revenues

3. Level of productive capital(2. Level + production required subject capital (tangible and intangible (for example, patent)))

Movement at this level is determined costs And production income

4. Net capital level(3. Level + other subject capital (tangible and intangible (for example, accounting program)))

Movement at this level is determined expenses And income

Instead of the level of net capital, you can use the concept level of total capital, if we take into account other non-material capital (for example, the company’s image..)

The movement of values between levels is usually carried out at all levels at once. But there are exceptions when only a few levels are covered and not all. They are indicated in the image by numbers.

I. Exceptions to the movement of value flows of levels 1 and 2 are due to credit transactions (financial delays):

4) payments, not costs: repayment of credit debt (="partial" loan repayment (NAMI))

1) costs, non-payment: the appearance of credit debt (=the appearance (of US) of a debt to other participants)

6) payment, non-receipt: entry of accounts receivable (="partial" repayment of debt by other participants for a product/service sold (by US))

2) receipts, non-payment: appearance of receivables (= provision (by OUR) of installment plans to pay for the product/service to other participants)

II. Exceptions to the movement of value flows of levels 2 and 4 are due to warehouse operations (material delays):

10) costs, not expenses: payment for credited materials that are still in the warehouse (=payment (US) by debit regarding “stale” materials or products)

3) expenses, not costs: delivery of still unpaid materials from the warehouse (to (OUR) production)

11) receipts, not income: pre-payment for the subsequent delivery of ((OUR) “future” product by other participants)

5) income, non-receipts: launch of an independently produced installation (="indirect" future receipts will create an influx of value for this installation)

III. Exceptions in the movement of value flows of levels 3 and 4 are due to the asynchrony between the intra-periodic and inter-periodic production (main) activities of the enterprise and the difference between the main and related activities of the enterprise:

7) expenses, not expenses: neutral expenses (= expenses of other periods, non-production expenses and unusually high expenses)

9) costs, not expenses: calculator costs (= write-offs, interest on equity capital, leasing of the company’s own real estate, owner’s salary and risks)

8) income, non-production income: neutral income (= income from other periods, non-production income and unusually high income)

It was not possible to detect production income that was not income.

Financial balance

The foundation of financial balance Any organization can be simplified into the following three postulates:

1) In the short term: superiority (or compliance) of payments over payments.
2) In the medium term: the superiority (or compliance) of revenues over costs.
3) In the long term: the superiority (or matching) of income over expenses.

Costs are the “core” of expenses (the main negative value flow of an organization). Production (core) income can be classified as the “core” of income (the main positive value flow of an organization), based on the concept of specialization (division of labor) of organizations in one or more types of activities in society or the economy.

Types of costs

Third-party company services
Other

A more detailed structuring of costs is also possible.

Types of costs

By impact on the cost of the final product
- indirect costs
In relation to production capacity utilization
In relation to the production process
- Production costs
- Non-production costs
Constant over time
- time-fixed costs
- episodic costs
By type of cost accounting
- accounting costs
- calculator costs
By divisional proximity to manufactured products
- overhead costs
- general business expenses
By importance to product groups
- group A costs
- group B costs
By importance to manufactured products
- product 1 costs
- product costs 2

By importance for decision making
- relevant costs
- irrelevant costs
By removability
- avoidable costs
- sunk costs
By adjustability
- adjustable
- unregulated costs
Refund possible
- return costs
- sunk costs
By cost behavior
- incremental costs
- marginal (marginal) costs
Cost to quality ratio
- corrective action costs
- costs of preventive actions

Sources

Kistner K.-P., Steven M.: Betriebswirtschaftlehre im Grundstudium II, Physica-Verlag Heidelberg, 1997

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Expenses, expenses, expense, expense, consumption, waste; cost, protori. Ant. income, income, profit Dictionary of Russian synonyms. costs see costs Dictionary of synonyms of the Russian language. Practical guide. M.: Russian language. Z.E... Synonym dictionary

COSTS- costs expressed in monetary form, caused by the expenditure of various types of economic resources (raw materials, materials, labor, fixed assets, services, financial resources) in the process of production and circulation of products and goods. General I. usually... ... Legal encyclopedia

Lecture: PRODUCTION COSTS AND PROFIT OF A FIRM.

Production costs: concept and types.

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

Revenues and profits of the company.

Production costs: concept and types.

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

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

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

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

Production costs are divided into:

individual- individual entrepreneur, company;

public- for production, environmental protection, training of qualified labor, scientific development;

production- for the production of goods and services;

appeals- related to the sale of manufactured products;

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

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

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

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

Production costs in the short term are divided into:

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

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

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

WITH

VС

Fig.1. General, fixed and variable costs.

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

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

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

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

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

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

WITH MS AU

A.F.C.

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

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

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

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

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

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

A.C. L

Q 1 Q 2 Q 3 Q 4 Q 5 Q

Fig.3. Long-run average cost curve.

Revenues and profits of the company.

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

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

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

Profit performs the following functions:

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

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

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

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

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

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

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

WITH MS

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

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

M.Y.= M.C.

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

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

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

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

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

It is impossible for companies to carry out any activity without investing costs in the process of making a profit.

However, there are different types of expenses. Some operations during the operation of the enterprise require constant investments.

But there are also costs that are not fixed costs, i.e. refer to variables. How do they affect the production and sale of finished products?

The concept of fixed and variable costs and their differences

The main goal of the enterprise is the manufacture and sale of manufactured products to make a profit.

To produce products or provide services, you must first purchase materials, tools, machines, hire people, etc. This requires an investment of various amounts. Money, which are called “costs” in economics.

Since monetary investments in production processes come in many different types, they are classified depending on the purpose of using the expenses.

In economics costs are shared according to the following properties:

Explicit is a type of direct cash costs for making payments, commission payments trading companies, payment for banking services, transportation costs, etc.;
Implicit, which includes the cost of using the resources of the organization's owners, not provided for by contractual obligations for explicit payment.
Fixed investments are investments to ensure stable costs during the production process.
Variables are special costs that can be easily adjusted without affecting operations depending on changes in production volumes.
Irreversible - a special option for spending movable assets invested in production without return. These types of expenses occur at the beginning of the release of new products or reorientation of the enterprise. Once spent, funds can no longer be used to invest in other business processes.
Average is the estimated cost that determines the amount of capital investment per unit of output. Based on this value, the unit price of the product is formed.
Marginal is the maximum amount of costs that cannot be increased due to the ineffectiveness of further investments in production.
Returns are the costs of delivering products to the buyer.

Of this list of costs, the most important are their fixed and variable types. Let's take a closer look at what they consist of.

Kinds

What should be classified as fixed and variable costs? There are some principles by which they differ from each other.

In economics characterize them as follows:

Fixed costs include the costs that need to be invested in the manufacture of products within one production cycle. For each enterprise they are individual, therefore they are taken into account by the organization independently based on an analysis of production processes. It should be noted that these costs will be characteristic and the same in each of the cycles during the manufacture of goods from the beginning to the sale of products.
variable costs that can change in each production cycle and are almost never repeated.

Fixed and variable costs make up the total costs, summed up after the end of one production cycle.

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What applies to them

The main characteristic of fixed costs is that they do not actually change over a period of time.

IN in this case, for an enterprise that decides to increase or decrease its output, such costs will remain unchanged.

Among them can be attributed the following cash costs:

communal payments;
building maintenance costs;
rent;
employee earnings, etc.

In this situation, you always need to understand that the constant amount of total costs invested in a certain period of time to produce products in one cycle will only be for the entire number of products produced. When calculating such costs individually, their value will decrease in direct proportion to the increase in production volumes. For all types of production this pattern is an established fact.

Variable costs depend on changes in the quantity or volume of products produced.

To them include the following expenses:

energy costs;
raw materials;
piecework wages.

Data cash investments are directly related to production volumes, and therefore change depending on the planned parameters of production.

Examples

In each production cycle there are cost amounts that do not change under any circumstances. But there are also costs that depend on production factors. Depending on such characteristics, economic costs for a certain, short period of time are called constant or variable.

For long-term planning such characteristics are not relevant, because sooner or later all costs tend to change.

Fixed costs are costs that do not depend in the short term on how much the company produces. It is worth noting that they represent the costs of its constant factors of production, independent of the number of goods produced.

Depending on the type of production into fixed costs consumables include:

Any costs that are not related to production and are the same in the short term of the production cycle can be included in fixed costs. According to this definition, it can be stated that variable costs are those expenses invested directly in product output. Their value always depends on the volume of products or services produced.

Direct investment of assets depends on the planned quantity of production.

Based on this characteristic, to variable costs The following costs include:

raw material reserves;
payment of remuneration for the labor of workers involved in the manufacture of products;
delivery of raw materials and products;
energy resources;
tools and materials;
other direct costs of producing products or providing services.

Graphic image variable costs displays a wavy line that smoothly rises upward. Moreover, with an increase in production volumes, it initially rises in proportion to the increase in the number of products produced, until it reaches point “A”.

Then cost savings occur during mass production, and therefore the line rushes upward at no less speed (section “A-B”). After the violation of the optimal expenditure of funds in variable costs after point “B”, the line again takes a more vertical position.
The growth of variable costs can be affected by the irrational use of funds for transport needs or excessive accumulation of raw materials and volumes of finished products during a decrease in consumer demand.

Calculation procedure

Let's give an example of calculating fixed and variable costs. The production is engaged in the manufacture of shoes. The annual production volume is 2000 pairs of boots.

The enterprise has the following types of expenses per calendar year:

Payment for renting the premises in the amount of 25,000 rubles.
Interest payment 11,000 rubles. for a loan.

Production costs goods:

for labor costs for the production of 1 pair 20 rubles.
for raw materials and materials 12 rubles.

It is necessary to determine the size of total, fixed and variable costs, as well as how much money is spent on making 1 pair of shoes.

As we can see from the example, only rent and interest on the loan can be considered fixed or fixed costs.

Due to fixed costs do not change their value when production volumes change, then they will amount to the following amount:

25000+11000=36000 rubles.

The cost of making 1 pair of shoes is considered a variable cost. For 1 pair of shoes total costs amount to the following:

20+12= 32 rubles.

Per year with the release of 2000 pairs variable costs in total are:

32x2000=64000 rubles.

Total costs are calculated as the sum of fixed and variable costs:

36000+64000=100000 rubles.

Let's define average of total costs, which the company spends on sewing one pair of boots:

100000/2000=50 rubles.

Cost analysis and planning

Each enterprise must calculate, analyze and plan costs for production activities.

Analyzing the amount of expenses, options for saving funds invested in production are considered in order to rational use. This allows the company to reduce production and, accordingly, install more cheap price for finished products. Such actions, in turn, allow the company to successfully compete in the market and ensure constant growth.

Any enterprise should strive to save production costs and optimize all processes. The success of the development of the enterprise depends on this. Thanks to the reduction in costs, the company's income increases significantly, which makes it possible to successfully invest money in the development of production.

Costs are planned taking into account calculations of previous periods. Depending on the volume of products produced, an increase or decrease in variable costs for the manufacture of products is planned.

Display in the balance sheet

In the financial statements, all information about the costs of the enterprise is entered into (Form No. 2).

Preliminary calculations during the preparation of indicators for entry can be divided into direct and indirect costs. If these values are shown separately, then we can assume that indirect costs will be indicators of fixed costs, and direct costs will be variable, respectively.

It is worth considering that the balance sheet does not contain data on costs, since it reflects only assets and liabilities, and not expenses and income.

To learn what fixed and variable costs are and what applies to them, see the following video:

Firm. Production costs and their types.

Parameter name	Meaning
Article topic:	Firm. Production costs and their types.
Rubric (thematic category)	Production

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

All firms can be classified according to two main criteria: the form of ownership of capital and the degree of concentration of capital. In other words: who owns the company and what is its size. Based on these two criteria, various organizational and economic forms are distinguished entrepreneurial activity. This includes public and private (sole proprietorships, partnerships, joint stock) enterprises. According to the degree of concentration of production, small (up to 100 people), medium (up to 500 people) and large (more than 500 people) enterprises are distinguished.

Determining the size and structure of the costs of an enterprise (firm) for the production of products that would ensure the enterprise a stable (equilibrium) position and prosperity in the market is the most important task of economic activity at the micro level.

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

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

Due to this circumstance, any decision to produce something makes it extremely important to refuse to use the same resources for the production of some other types of products. Thus, costs are opportunity costs.

Opportunity Cost- these are the costs of producing a product, assessed in terms of the lost opportunity to use the same resources for other purposes.

From an economic point of view, opportunity costs can be divided into two groups: “explicit” and “implicit”.

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

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

Implicit costs - this is the opportunity cost of using resources owned by the firm itself, ᴛ.ᴇ. unpaid expenses.

Implicit costs are presented as:

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

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

For example, an entrepreneur engaged in the production of fountain pens considers it sufficient for himself to receive a normal profit of 15% of the invested capital. And if the production of fountain pens gives the entrepreneur less than normal profit, then he will move his capital to industries that give at least normal profit.

3. It is important to note that for the owner of capital, implicit costs are the profit that he could have received by investing his capital not in this, but in some other business (enterprise). For a peasant who owns land, such implicit costs will be the rent that he could receive by renting out his land. For an entrepreneur (including a person engaged in ordinary labor activity) the implicit costs will be the salary that he could have received for the same time, working for hire at any company or enterprise.

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

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

Economic or opportunity costs in modern theory are considered to be the costs of a company incurred in the conditions of making the best economic decision on the use of resources. This is the ideal to which a company should strive. Of course, the real picture of the formation of total (gross) costs is somewhat different, since any ideal is difficult to achieve.

It must be said that economic costs are not equivalent to those with which accounting operates. IN accounting costs The entrepreneur's profit is not included at all.

Production costs, which are used by economic theory, are distinguished from accounting by the assessment of internal costs. The latter are associated with costs incurred through the use of own products in production process. For example, part of the harvested crop is used to sow the company's land. The company uses such grain for internal needs and does not pay for it.

In accounting, internal costs are accounted for at cost. But from the standpoint of setting the price of a released product, costs of this kind should be assessed at the market price of that resource.

Internal costs - These are associated with the use of the company’s own products, which turn into a resource for the company’s further production.

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

Production costs, which are realized in the production of a product, can be classified not only depending on what resources are used, be it the resources of the company or the resources that had to be paid for. Another classification of costs is possible.

Fixed, variable and total costs

The costs that a firm incurs in producing a given volume of output depend on the possibility of changing the amount of all employed resources.

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

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

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

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

General (gross) costs for the quantity of goods produced - these are all the costs at a given point in time necessary for the production of a particular product.

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

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

Average fixed costs (AFS) represent the fixed cost ratio (FC) to production volume:

AFC = FC/Q.

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

AVC=VC/Q.

Average total costs (PBX) represent the total cost ratio (TS)

to production volume:

ATS= TC/Q =AVC + AFC,

because TS= VC + FC.

Average costs are used when deciding whether to produce a given product at all. In particular, if the price representing average income per unit of output, less than AVC, then the firm will reduce its losses by suspending its activities in the short term. If the price is lower ATS, then the firm receives negative economics; profits and should consider permanent closure. Graphically this situation should be depicted as follows.

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

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

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

In other words, marginal cost is an increase TS, the firm must go to ĸᴏᴛᴏᴩᴏᴇ in order to produce another unit of output:

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

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

The firm's equilibrium point maximum profit is achieved in the case of equality of marginal revenue and marginal costs.

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

Firm. Production costs and their types. - concept and types. Classification and features of the category "Company. Production costs and their types." 2017, 2018.