In the previous paragraph, in search of the optimal combination of factors of production, the firm could change both labor and capital. However, in practice, it is much easier for a company to hire additional workers than to purchase new equipment - capital. The latter requires more time. In this regard, in production theory, a distinction is made between short and long periods.

In the long run, a firm can change all factors of production to increase output. In the short run, some factors of production are variable, while others are constant. Here, to increase output, the firm can measure only variable factors. Prices for factors of production in the short run are assumed to be fixed. It follows that all costs of a company in a short period can be divided into constant and variable.

Fixed costs(FC) are costs whose value does not change together with a change in output volume, i.e. These are the costs of fixed factors of production. Typically, fixed costs include depreciation, rent, interest on loans, salaries of management and office employees, etc. Fixed costs usually include implicit costs.

Variable costs(VC) are costs whose value is changing together with a change in output volume, i.e. These are the costs of variable factors of production. These usually include wages of production workers, costs of raw materials and materials, electricity for technological purposes, etc.

In theoretical microeconomic models, variable costs usually include labor costs, and fixed costs usually include capital costs. From this point of view, the value variable costs equal to the product of the price of one man-hour of labor (PL) by the number of man-hours (L):

In turn, the value of fixed costs is equal to the product of the price of one machine-hour of capital (PK) by the number of machine-hours (K):

The sum of fixed and variable costs gives us total costs(TC):

F.C.+ V.C.= TC

In addition to total costs, you also need to know average costs.

Average fixed costs(AFC) are fixed costs per unit of output:

Average Variable Costs(AVC) are variable costs per unit of output:

Average total costs(AC) is the total costs per unit of output or the sum of average fixed and average variable costs:

When analyzing a firm's market behavior, marginal costs play an important role. Marginal Cost(MC) reflect the increase in total costs with an increase in output (q) by one unit:

Since only variable costs increase with output growth, the increment in total costs is equal to the increment in variable costs (DTC=DVC). We can therefore write:

You can put it this way: marginal costs are the costs associated with producing the last unit of output.

Let's give an example of cost calculation. Let there be 10 units upon release. variable costs are 100, and at output 11 units. they reach 105. Fixed costs do not depend on output and are equal to 50. Then:

In our example, output increased by 1 unit. (Dq=1), while variable and total costs increased by 5 (DVC=DTC=5). Consequently, an additional unit of output required an increase in costs by 5. This is the marginal cost of producing the eleventh unit of output (MC = 5).

If the total (variable) cost function is continuous and differentiable, then the marginal costs for a given volume of output can be determined by taking the derivative of this function with respect to output:

or

Let's consider the variable costs of an enterprise, what they include, how they are calculated and determined in practice, consider methods for analyzing the variable costs of an enterprise, the effect of changing variable costs at different volumes of production and their economic sense. In order to easily understand all this, an example of variable cost analysis based on the break-even point model is analyzed at the end.

Variable costs of the enterprise. Definition and their economic meaning

Variable costs of the enterprise (EnglishVariableCost,V.C.) are the costs of the enterprise/company, which vary depending on the volume of production/sales. All costs of an enterprise can be divided into two types: variable and fixed. Their main difference is that some change with increasing production volume, while others do not. If production activity the company ceases, then variable costs disappear and become equal to zero.

Variable costs include:

• The cost of raw materials, materials, fuel, electricity and other resources involved in production activities.
• Cost of manufactured products.
• Wages of working personnel (part of the salary depends on the standards met).
• Percentages on sales to sales managers and other bonuses. Interest paid to outsourcing companies.
• Taxes that have a tax base based on the size of sales and sales: excise taxes, VAT, unified tax on premiums, tax according to the simplified tax system.

What is the purpose of calculating the variable costs of an enterprise?

Behind any economic indicator, coefficient and concept one should see their economic meaning and the purpose of their use. If we talk about economic goals of any enterprise/company, there are only two of them: either increasing income or reducing costs. If we summarize these two goals into one indicator, we get the profitability/profitability of the enterprise. The higher the profitability/profitability of an enterprise, the greater its financial reliability, the greater the opportunity to attract additional borrowed capital, expand its production and technical capacity, increase intellectual capital, increase your market value and investment attractiveness.

The classification of enterprise costs into fixed and variable is used for management accounting, and not for accounting. As a result, there is no such item as “variable costs” in the balance sheet.

Determining the size of variable costs in the overall structure of all enterprise costs allows you to analyze and consider various management strategies for increasing the profitability of the enterprise.

Amendments to the definition of variable costs

When we introduced the definition of variable costs/costs, we were based on a model of linear dependence of variable costs and production volume. In practice, variable costs often do not always depend on the size of sales and output, so they are called conditionally variable (for example, the introduction of automation of part of production functions and, as a result, a decrease wages for the production rate of production personnel).

The situation is similar with fixed costs; in reality, they are also semi-fixed and can change with production growth (increasing rent for industrial premises, changes in the number of personnel and the consequence of wages. More details about fixed costs you can read in detail in my article: “”.

Classification of enterprise variable costs

In order to better understand how to understand what variable costs are, consider the classification of variable costs according to various criteria:

Depending on the size of sales and production:

• Proportional costs. Elasticity coefficient =1. Variable costs increase in direct proportion to the growth of production volume. For example, production volume increased by 30% and costs also increased by 30%.
• Progressive costs (analogous to progressive-variable costs). Elasticity coefficient >1. Variable costs have a high sensitivity to change depending on the size of output. That is, variable costs increase relatively more with production volume. For example, production volume increased by 30% and costs by 50%.
• Degressive costs (analogous to regressive-variable costs). Elasticity coefficient< 1. При увеличении роста производства переменные издержки предприятия уменьшаются. Данный эффект получил название – «эффект масштаба» или «эффект массового производства». Так, например, объем производства вырос на 30%, а при этом размер переменных издержек увеличился только на 15%.

The table shows an example of changes in production volume and the size of variable costs for their various types.

According to statistical indicators, there are:

• Total variable costs ( EnglishTotalVariableCost,TVC) – include the totality of all variable costs of the enterprise for the entire range of products.
• Average variable costs (AVC, AverageVariableCost) – average variable costs per unit of product or group of goods.

According to the method of financial accounting and attribution to the cost of manufactured products:

• Variable direct costs are costs that can be attributed to the cost of goods manufactured. Everything is simple here, these are the costs of materials, fuel, energy, wages, etc.
• Variables indirect costs– costs that depend on production volume and it is difficult to assess their contribution to the cost of production. For example, during the industrial separation of milk into skim milk and cream. Determining the amount of costs in the cost price of skim milk and cream is problematic.

In relation to the production process:

• Production variable costs - costs of raw materials, supplies, fuel, energy, wages of workers, etc.
• Non-production variable costs are costs not directly related to production: commercial and administrative expenses, for example: transportation costs, commission to an intermediary/agent.

Formula for calculating variable costs/expenses

As a result, you can write a formula for calculating variable costs:

Variable costs = Costs of raw materials + Materials + Electricity + Fuel + Bonus part of salary + Interest on sales to agents;

Variable costs= Marginal (gross) profit – Fixed costs;

The combination of variable and fixed costs and constants constitute the total costs of the enterprise.

Total costs= Fixed costs + Variable costs.

The figure shows the graphical relationship between enterprise costs.

How to reduce variable costs?

One strategy for reducing variable costs is to use “economies of scale.” With an increase in production volume and the transition from serial to mass production, economies of scale appear.

Economies of scale graph shows that as production volume increases, a turning point is reached when the relationship between costs and production volume becomes nonlinear.

At the same time, the rate of change in variable costs is lower than the growth of production/sales. Let's consider the reasons for the appearance of the “production scale effect”:

1. Reducing management personnel costs.
2. Use of R&D in production. An increase in output and sales leads to the possibility of conducting expensive scientific research research work to improve production technology.
3. Narrow product specialization. Focusing the entire production complex on a number of tasks can improve their quality and reduce the amount of defects.
4. Production of products similar in the technological chain, additional capacity utilization.

Variable costs and break-even point. Example calculation in Excel

Let's consider the break-even point model and the role of variable costs. The figure below shows the relationship between changes in production volume and the size of variable, fixed and total costs. Variable costs are included in total costs and directly determine the break-even point. More

When the enterprise reaches a certain volume of production, an equilibrium point occurs at which the size of profits and losses coincides, net profit is equal to zero, and marginal profit is equal to fixed costs. Such a point is called break-even point, and it shows the minimum critical level of production at which the enterprise is profitable. In the figure and calculation table presented below, 8 units are achieved by producing and selling. products.

The enterprise's task is to create security zone and ensure a level of sales and production that would ensure the maximum distance from the break-even point. The further an enterprise is from the break-even point, the higher the level of its financial stability, competitiveness and profitability.

Let's look at an example of what happens to the break-even point when variable costs increase. The table below shows an example of changes in all indicators of income and costs of an enterprise.

As variable costs increase, the break-even point shifts. The figure below shows a graph for achieving the break-even point in a situation where the variable costs of producing one unit of steel are not 50 rubles, but 60 rubles. As we can see, the break-even point became equal to 16 units of sales/sales or 960 rubles. income.

This model, as a rule, operates with linear relationships between production volume and income/costs. In real practice, dependencies are often nonlinear. This arises due to the fact that production/sales volume is influenced by: technology, seasonality of demand, influence of competitors, macroeconomic indicators, taxes, subsidies, economies of scale, etc. To ensure the accuracy of the model, it should be used in short term for products with stable demand (consumption).

Summary

In this article, we examined various aspects of variable costs/costs of an enterprise, what forms them, what types of them exist, how changes in variable costs and changes in the break-even point are related. Variable costs are the most important indicator of an enterprise in management accounting, for creating planned tasks for departments and managers to find ways to reduce their weight in total costs. To reduce variable costs, production specialization can be increased; expand the range of products using the same production facilities; increase the share of scientific and production developments to improve efficiency and quality of output.

Certain costs, which do not depend at all on changes in production volume. They can only depend on time. At the same time, variables and permanent costs in sum determine the size of the total costs.

You can also have fixed costs if you derive this indicator from the formula that determines: Revenue = Fixed costs - Variable (total) costs. That is, based on this formula, we get: Fixed costs = Revenue + Variable (total) costs.

Sources:

• Average variable costs

Costs play a big role in business development, because they directly affect profits. In modern economics, there are two types: fixed and variable costs. Their optimization allows you to increase the efficiency of the enterprise.

To begin with, it is necessary to define the short-term and long-term periods. This will allow you to better understand the essence of the issue. In the short run, factors of production can be constant or variable. In the long run, they will only be variables. Let's say the building is . In the short term, it will not change in any way: the company will use it to, for example, place machines. However, in the long term, the company can buy a more suitable building.

Fixed costs

Fixed costs are those that do not change in the short run even if production increases or decreases. Let's say the same building. No matter how many goods are produced, the rent will always be the same. You can work even the whole day, the monthly payment will still remain unchanged.

To optimize fixed costs it is necessary comprehensive analysis. Depending on the specific unit, solutions may vary significantly. If we're talking about about the rent for the building, then you can try to reduce the price for accommodation, occupy only part of the building so as not to pay for everything, etc.

Variable costs

It is not difficult to guess that variables are costs that can change depending on the decrease or increase in production volumes in any period. For example, to make one chair you need to spend half a tree. Accordingly, to make 100 chairs, you need to spend 50 trees.

It is much easier to optimize variable costs than fixed ones. Most often, it is simply necessary to reduce the cost of production. This can be done, for example, by using cheaper materials, upgrading technology or optimizing the location of workplaces. Let’s say that instead of oak, which costs 10 rubles, we use poplar, which costs 5 rubles. Now, to produce 100 chairs you need to spend not 50 rubles, but 25.

Other indicators

There are also a number of secondary indicators. Total costs are a combination of variable and fixed costs. Let’s say that for one day of renting a building, an entrepreneur pays 100 rubles and produces 200 chairs, the cost of which is 5 rubles. Total costs will be equal to 100+(200*5)=1100 rubles per day.

Beyond that, there are plenty of averages. For example, average fixed costs (how much you need to pay for one unit of production).

Fixed costs (TFC), variable costs (TVC) and their schedules. Determining total costs

In the short run, some resources remain unchanged, while others change to increase or decrease total output.

In accordance with this, short-term economic costs are divided into fixed and variable costs. IN long term this division makes no sense, since all costs can change (that is, they are variable).

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

Fixed costs include:

• - payment of interest on bank loans;
• - depreciation deductions;
• - payment of interest on bonds;
• - salary of management personnel;
• - rent;
• - insurance payments;

Variable costs(VC) These are costs that depend on the firm's output. They represent the costs of the firm's variable factors of production.

Variable costs include:

• - wage;
• - fare;
• - electricity costs;
• - costs of raw materials and materials.

From the graph we see that the wavy line depicting variable costs rises with increasing production volume.

This means that as production increases, variable costs increase:

initially they grow in proportion to the change in production volume (until point A is reached)

then variable cost savings are achieved by mass production, and their growth rate decreases (until reaching point B)

the third period, reflecting a change in variable costs (movement to the right from point B), is characterized by an increase in variable costs due to violation optimal sizes enterprises. This is possible with an increase in transportation costs due to the increased volumes of imported raw materials and the volumes of finished products that need to be sent to the warehouse.

Total (gross) costs (TC)- these are all the costs at a given time necessary for the production of a particular product. TC = FC + VC

Formation of the long-term average cost curve, its graph

Economies of scale are a long-term phenomenon when all resources are variable. This phenomenon should not be confused with the well-known law of diminishing returns. The latter is a phenomenon of an exclusively short-term period, when constant and variable resources interact.

At constant prices for resources, economies of scale determine the dynamics of costs in the long term. After all, it is he who shows whether increasing production capacity leads to decreasing or increasing returns.

It is convenient to analyze the efficiency of resource use in a given period using the LATC long-term average cost function. What is this function? Let's assume that the Moscow government is deciding on the expansion of the city-owned AZLK plant. With the available production capacity, cost minimization is achieved with a production volume of 100 thousand cars per year. This state of affairs is reflected by the short-term average cost curve ATC1, corresponding to a given scale of production (Fig. 6.15). Let the introduction of new models, which are planned to be released jointly with Renault, increase the demand for cars. The local design institute proposed two plant expansion projects, corresponding to two possible production scales. Curves ATC2 and ATC3 are the short-run average cost curves for this large scale of production. When deciding on the option to expand production, the plant management, in addition to taking into account the financial possibilities of investment, will take into account two main factors: the magnitude of demand and the value of the costs with which the required volume of production can be produced. It is necessary to select a production scale that will ensure that demand is met at minimum cost per unit of production.

ILong-run average cost curve for a specific project

Here, the points of intersection of adjacent short-term average cost curves (points A and B in Fig. 6.15) are of fundamental importance. By comparing the production volumes corresponding to these points and the magnitude of demand, the need to increase the scale of production is determined. In our example, if the demand does not exceed 120 thousand cars per year, it is advisable to carry out production at the scale described by the ATC1 curve, i.e. at existing capacities. In this case, the achievable unit costs are minimal. If demand increases to 280 thousand cars per year, then the most suitable plant would be with the production scale described by the ATC2 curve. This means that it is advisable to carry out the first investment project. If demand exceeds 280 thousand cars per year, it will be necessary to implement a second investment project, that is, expand the scale of production to the size described by the ATC3 curve.

In the long term, there will be enough time to implement any possible investment project. Therefore, in our example, the long-term average cost curve will consist of successive sections of short-term average cost curves up to the points of their intersection with the next such curve (thick wavy line in Fig. 6.15).

Thus, each point on the LATC long-run cost curve determines the minimum achievable unit cost at given volume production taking into account the possibility of changing the scale of production.

In the limiting case, when a plant of the appropriate scale is built for any amount of demand, i.e. there are infinitely many short-term average cost curves, the long-term average cost curve changes from a wave-like one to a smooth line that goes around all the short-term average cost curves. Each point on the LATC curve is a point of tangency with a specific ATCn curve (Figure 6.16).

Instructions

Identify common costs(TCi) for each value of Q according to the formula: TCi = Qi *VC +PC. However, you need to understand that before calculating marginal costs, you must have variable (VC) and fixed (PC) costs.

Determine the change in total costs resulting from an increase or decrease in production, i.e. determine the change in TC - ∆ TC. To do this, use the formula: ∆ TC = TC2- TC1, where:
TC1 = VC*Q1 + PC;
TC2 = VC*Q2 + PC;
Q1 - production volume before change,
Q2 – production volumes after the change,
VC – variable costs per unit of production,
PC – fixed costs of the period required for a given volume of production,
TC1 – total costs before changes in production volume,
TC2 – total costs after changes in production volume.

Divide the increment in total costs (∆ TC) by the increment in production volume (∆ Q) - you will get the marginal cost of producing an additional unit of output.

Draw a graph of changes in marginal costs for different productions - this will give a visual picture of the mathematical one, which will clearly demonstrate the process of changes in production costs. Pay attention to the MS form on yours! The marginal cost curve MC clearly shows that with all other factors remaining constant, as production increases, marginal costs increase. It follows from this that it is impossible to endlessly increase production volumes without changing anything in production itself. This leads to an unreasonable increase and decrease in the expected one.

Helpful advice

Increase production by using intensive methods to increase efficiency: by modernizing production, replacing equipment, changing technologies, and training personnel. Constantly improve your productivity levels.

Recognized as permanent costs, the value and quantity of which does not change over a minimum period of time and regardless of the volume of products sold. Such costs include salaries of management personnel, payment of rent, maintenance of production workshops, payments to creditors, transport costs.

You will need

• calculator
• notepad and pen

Instructions

Calculate permanent costs enterprises for a given period of time. Let the retailer handle the sale of goods. Then her permanent costs will be equal
FC = Y + A + K + T, where
U – salary of management personnel (112 rubles),
A – payments for renting premises (50 thousand rubles),
K – payments on accounts payable, for example, for the purchase of the first batch of goods (158 thousand rubles),
T – transport related to the delivery of goods (190 thousand rubles).
Then FC = 112 + 50 + 158 + 190 = 510 thousand rubles. This must be paid by the trade organization to the relevant authorities or suppliers. Even if the trading organization was unable to sell the goods during the period under consideration, it must pay 510 thousand rubles.

Divide the resulting amount by the quantity of goods sold. For example, a trading organization was able to sell 55 thousand units of goods during the specified period. Then its average permanent costs can be done as follows:
FC = 510 / 55 = 9.3 rubles per unit of goods sold. Constant costs do not depend . With zero implementation permanent costs continue to be equated with mandatory payments. The greater the volume of products sold, the lower the fixed costs. Accordingly, with a decrease in the volume of goods sold permanent costs per unit of production will increase, which may naturally lead to an increase in prices for these products. This is explained by the fact that large quantity of goods sold distributes a common constant value among themselves. That is why permanent costs First of all, products are included to cover mandatory expenses.

Sources:

Variables are recognized costs, which directly depend on the volume of calculated production. Variables costs will depend on the cost of raw materials, materials, the cost of electrical energy, and the amount of wages paid.

You will need

• calculator
• notepad and pen
• a complete list of enterprise costs with the indicated amount of costs

Instructions

Add it all up costs enterprises that directly depend on the volume of products produced. For example, the variables of a trading company selling consumer goods include:
Pp – volume of products purchased from suppliers. Expressed in rubles. Let a trade organization purchase goods from suppliers in the amount of 158 thousand rubles.
Uh – to electric. Let a trade organization pay 3,500 rubles for .
Z – the salary of sellers, which depends on the quantity of goods they sell. Let the average wage fund in a trade organization be 160 thousand rubles. Thus, the variables costs trade organization will be equal to:
VC = Pp + Ee + Z = 158+3.5+160 = 321.5 thousand rubles.

Divide the resulting amount of variable costs by the volume of products sold. This indicator can be found by a trade organization. The volume of goods sold in the above example will be expressed in quantitative terms, that is, by piece. Suppose a trading organization was able to sell 10,500 units of goods. Then the variables costs taking into account the quantity of goods sold are equal to:
VC = 321.5 / 10.5 = 30 rubles per unit of goods sold. Thus, variable costs are made not only by adding the organization’s costs for the purchase and goods, but also by dividing the resulting amount by the unit of goods. Variables costs with an increase in the quantity of goods sold, they decrease, which may indicate efficiency. Variables depending on the type of company activity costs and their types may change - added to those indicated above in the example (costs of raw materials, water, one-time transportation of products and other expenses of the organization).

Sources:

• "Economic theory", E.F. Borisov, 1999

Costs production - these are the costs associated with the circulation of manufactured goods and production. In statistical and financial reporting, costs are reflected as cost. Costs include: labor costs, interest on loans, material costs, costs associated with promoting the product on the market and selling it.

Instructions

Costs There are variables, constants and . Fixed costs are those costs that in the short term do not depend on how much the company produces. These are the costs of the enterprise's constant factors of production. Total costs are everything that the manufacturer spends for production purposes. Variable costs are those costs that always depend on the volume of the firm's output. These are the costs of variable factors in a firm's production.

Fixed costs opportunity cost part financial capital, which was invested in the equipment of the enterprise. The value of this cost is equal to the amount, for which the owners of the company could invest this equipment and the proceeds received in the most attractive investment business (for example, in an account or in the stock exchange). These include all costs of raw materials, fuel, transport services etc. The largest portion of variable costs tends to be materials and labor. Since, as output grows, the costs of variable factors increase, so do variable costs, respectively, with the growth of output.

Average costs are divided into average variable, average fixed and average total. To find the average, you need to divide fixed costs by the volume of output. Accordingly, in order to calculate average variable costs, it is necessary to divide variable costs by the volume of output. To find average total costs, you need to divide total costs (the sum of variable and constant) by the volume of output.

Average costs are used to decide whether a given product needs to be produced at all. If the price that represents average income per unit of output is less than average variable costs, then the company will reduce its losses if it suspends its operations in the short term. If the price is below average total cost, then the firm is making negative profits and must consider permanent closure. Moreover, if average costs are lower market price, the enterprise can operate quite profitably within the limits of its production volume.