Production costs - Economic theory (Golovachev A.S.). Types of production costs

Under costs production understand the cost of manufacturing products. From the point of view of society, the costs of producing goods are equal to the total costs of labor (living and materialized, necessary and surplus). From the point of view of the enterprise, due to its economic isolation, only its own expenses are included in the cost structure. Moreover, these costs are divided into external and internal.
External (explicit) costs are direct cash payments to resource providers. Explicit costs include the wages of workers and salaries of managers, payments to trading firms, banks, payment for transport services, and much more.
Internal(implicit) costs (imputed): costs for own and self-used resource, opportunity costs that are not provided for by contracts, are obligatory for explicit payments, and therefore remain unreceived in monetary form (use of premises or transport owned by the company, own labor of the owner of the company, etc. .d.)

Internal ed. are included in fixed costs and variable ed. + normal profit.
Economists consider all costs, both external and internal, to be costs.
Fixed, variable and general (cumulative) costs.
Fixed costs are those costs that do not change with changes in the volume of production. These include: loan and credit obligations, rent payments, depreciation of buildings and equipment, insurance premiums, rent, salaries of senior staff and leading specialists, etc.

Variables are called costs, the value of which varies depending on the change in the volume of production: the cost of raw materials, fuel, energy, transport services, wages, etc.

The total cost is the total cost of the firm.
The distinction between fixed and variable costs is significant, since variable costs can be controlled and changed by the entrepreneur, while fixed costs are outside the control of the company's management and are mandatory.

Analysis of the level of coverage of production costs allows you to determine the amount of products that need to be released in order to recover costs and make a profit, as well as determine the optimal price of products.

Fixed and variable costs. Production costs are the sum of the costs of acquiring factors of production. In 1923, the American economist J. Clark introduced the division of costs into fixed and variable. If in the Marxist concept fixed costs represent the cost of constant capital, then J. Clarke refers to them as those costs that do not depend on the volume of products produced. Variable costs include costs, the value of which directly depends on the quantity of products produced (costs of raw materials, materials, wages). The structures of fixed and variable costs are shown in fig. 11.1 and fig. 11.2.

Division into fixed and variable costs It is carried out only for a short period during which the firm cannot change constant factors (buildings, structures, equipment). There are no fixed costs in the long run. All costs become variable, as all factors are subject to change, improvement and renewal.

Gross costs- a set of fixed and variable costs in the form of cash costs for the production of a certain volume of products.

To measure the costs per unit of production, indicators of average costs, average fixed and average variable costs are used.

Average cost are formed by dividing gross costs by the quantity of goods produced.

Average constants are obtained by dividing fixed costs by the number of products created.

Average variables are determined by dividing variable costs by the quantity of goods manufactured. Fixed, variable and gross costs are presented in fig. 11.3.

It can be seen from the graph that fixed costs are constant. This is due to the fact that they are associated with the existence of the company, equipping with production equipment, tooling, energy devices. All this must be paid in advance. On the chart, these expenses amount to 250 thousand rubles.

These costs remain unchanged at all levels of output, including zero. Variable costs increase in direct proportion to the increase in output. However, the increase in variable costs per unit of output is not constant. At the initial stage, variable costs increase at a slow pace. In our example, this happens before the release of the 5th unit of production. Then variable costs begin to increase at an increasing rate, which is due to the law of diminishing returns.

Gross costs increase as variable costs increase. At zero output, total costs equal the sum of fixed costs. In our example, they amount to 250 thousand rubles.

The situation is similar when hiring a worker of a certain qualification. The wages paid to him appear to the entrepreneur in the form of an opportunity cost, since the firm has chosen a specific worker from all other alternatives, having missed the opportunity to use the services of another individual. Opportunity costs are determined in the same way when using any resource. Opportunistic costs are divided into external and internal.

External(“explicit”) costs are cash payments that a company makes when purchasing raw materials, materials, equipment “from outside”, that is, from suppliers that are not part of the company.

Internal(“implicit”) costs are unpaid costs for resources owned by the firm. They are equal to cash payments that could be received by transferring them to other entrepreneurs for independent use. Internal costs include: the salary of an entrepreneur, which he could receive while performing the duties of a manager in another firm; non-received funds in the form of rent, which can be obtained when renting out premises; non-received cash in the form of interest on capital, which the company could have received if they were placed on a bank deposit.

When determining the strategy of the company's behavior, the additional costs associated with an increase in the number of products produced are of great importance. Such costs are called marginal costs.

marginal cost is the incremental cost that is caused by the production of an additional unit of a product. Marginal costs are sometimes called differential costs (i.e., difference costs). Marginal cost is defined as the difference between subsequent and previous gross costs.

Average cost curves. A more detailed study of the effectiveness of the functioning of the company can be done by measuring the costs of producing a unit of output. For these purposes, the categories of average general - ATC, average fixed - AFC, average variable costs - AVC are used. Graphically, they can be depicted as follows (Fig. 11.5).

Average cost curve ATC has an arcuate shape. This is due to the fact that up to the point M they are dominated by fixed costs. A.F.C.. After the dot M the main influence on the value of average costs begin to have not fixed, but variable costs AVC, and due to the law of diminishing returns, the average cost curve begins to rise.

At the point M average total costs reach a minimum value per unit of output. At the same time, it must be taken into account that the marginal cost curve is not related to fixed costs, they do not depend on whether the firm reduces or increases output. Therefore, we will not depict the curve of average fixed costs on the graph. As a result, the graph will take the following form (Fig. 11.6).

Marginal cost curve MS at the initial stage it goes down as a result of the fact that marginal costs are determined by variable costs. At the point S 1 limit curves MS and variables AVC costs overlap.

This indicates that the variable costs for this type of product begin to increase and the firm must stop producing this type of product. However, this does not mean that the company becomes unprofitable and may go bankrupt. Fixed costs for this type of product, the company can block income from the sale of other products.

At the point S the curves of the mean totals intersect ATS and marginal MS costs. In the theory of market economy, this point is called the point of equal opportunity or the minimum profitability of the firm. Dot S 2 and the corresponding production volume q S 2 means that the firm can provide the maximum possible supply of goods with full use of production capacity and available resources.

Any firm organizing the production of goods or services must have a clear business plan. The entrepreneur must be aware of what profit he can expect in the future. To this end, he studies the demand for his product or service in the market, determines at what price he will sell his products. And, most importantly, it compares the expected income with costs or with their counterpart - costs.

The economic activity of any firm involves certain costs. They are associated primarily with the acquisition of all the necessary factors, as well as with the sale of an already produced product. Experts have defined their valuation as the concept of "production costs". Simply put, production costs (cost) is the cost of everything that the seller has to give up in order to release his goods.

What are production costs

The concept of "production costs", associated with certain losses or sacrifices that must be borne in order to obtain certain useful results, is considered to be very diverse and versatile. Production costs can be:

tangible;
intangible;
objective;
subjective;
monetary;
non-financial.

Economic costs can be presented in two ways. First of all, as the value of the resources expended, expressed in actual acquisition prices. Secondly, as the value of other benefits that theoretically could be obtained in the case of the most profitable of all possible options for using these same resources. Experts call the first approach "accounting". The second option is the opportunity cost of production, which is an indicator of opportunity costs. Economic theory explains the essence of opportunity costs with the following example: the opportunity cost of corn grown on a certain plot of land is presented as a profit from wheat, which could take place if the same plot was used for this particular cult.

Production costs and their types

Expenses can be classified according to the following criteria:

public - they represent the total costs of society necessary for the production of a particular product and include not only production costs, but also any other costs, for example, environmental protection, training of qualified personnel, etc.;
individual - these are expenses directly to the company;
production costs - they are directly related to the production of goods and services;
distribution costs - they are associated with the sale of manufactured products.

If you look at the process of buying and selling from the position of the seller, then in order to receive income from the transaction, he, first of all, will need to recoup all the costs incurred for the goods being sold. The economic costs of production are those economic costs that, in the opinion of the entrepreneur, he had in the production process. These include:

resources acquired by the firm;
internal resources of the company that are not included in the market turnover;
normal profit, considered by the entrepreneur as compensation for his risk in business.

It is their economic costs that the firm must reimburse through the price set for the product or service in the first place. And if he fails to return the economic costs of production, he has one way out: to leave this area of activity for the market in another. Otherwise, as a result of constant losses, bankruptcy may occur with all the ensuing consequences.

Accounting costs include those cash costs and payments that a firm makes in order to acquire all the necessary factors in order to carry out production. They are always less than economic ones, since they take into account only their real values for the acquisition of resources that are needed for production. Both accounting costs and economic costs - all types of business costs - must be legally documented. They exist explicitly, and therefore are the basis for accounting.

In turn, accounting costs in their composition have direct and indirect types. The first consists of the volume of expenses that go directly to production, and the second is those without which a firm or individual entrepreneur cannot work normally. These costs include:

overheads;
payment of interest to the bank;
depreciation charges, etc.

The difference between economic and accounting cost is the opportunity cost. And if the accountant, in particular, is interested in a specific assessment of the activities of a particular company in the current short-term period, then the economist, in addition, is also interested in the current, in particular, the predicted assessment of activities, the theory of finding the most optimal option for using available resources in the long term.

Fixed and variable costs of production

The concept of production costs assumes that different types of resources in different ways transfer their value to finished products. In accordance with this, both theory and practice distinguish between fixed or variable production costs. Fixed costs are those costs that do not change with the volume of goods or services produced. They should be paid even if the company for certain reasons does not produce products. This:

rental of equipment and premises;
deductions for depreciation;
insurance and pension contributions;
payment of management personnel, etc.

Variables are costs, the total value of which is directly related to many factors. These are factors such as

dependence on production volumes;
implementation dependency;
from the structure of production, etc.

Variable costs are the costs of:

raw materials;
Consumables;
fuel;
energy carriers;
transport services,
labor resources, etc.

It turns out that such types of production costs, as variables, ultimately depend not only on the volume of production, but also on saving many material or labor costs. Variable production costs in the long run can be reduced by rationalizing them. The impact of all these factors leads to the fact that variable costs increase in different ways with the growth of output.

In practice, there are three possible options for increasing the volume of variable costs:

in proportion to the increase in production volumes;
regressive;
faster than the increase in production.

It is possible to reveal the degree of influence of rationalization and saving both material and labor resources on the nature of variable costs if we calculate the variable average production costs per unit of output. In addition, when managing the process of formation of costs, the company's management must constantly focus on the nature of the growth of their volume. This is necessary in order to take timely measures aimed at reducing production costs.

The firm's production costs in the short run

In the conditions of fierce competition that prevails today in all areas of the market, it is important not only to know the amount of fixed or variable costs, but also the total costs. Sometimes they are called gross. The formula by which the total costs are calculated is as follows: Иo = Иc + Иv, where

Io - general or gross spending;

Ic - constant;

IV are variables.

By calculating the average, fixed, variable costs, and, ultimately, total or gross, as well as opportunity costs, the company's management can clearly understand the costs that the company incurs in the course of its activities, from the initial stage up to the maximum use of all the potential of this production. This is necessary in order to draw up a new, rationalized business plan for production, in which profits will be greater, and costs will tend to decrease.

Production costs in the short run

To determine the impact of each type of resource on the dynamics of production, specialists use the analysis of the production function over time periods. The main criterion for selecting time periods is the speed with which the resources involved in production will change their quantitative and qualitative compositions. There are three periods:

short;
long-term;
instantaneous.

In the instantaneous time period, all costs are fixed, since the product is already on the market and neither production volumes nor costs can change. In the short term, there is a division of costs into fixed and variable. In the long term, the management of the company has the opportunity not only to purchase more raw materials and materials, but also to increase the number of jobs and to make investments. Therefore, it is generally accepted that in the long run all costs are not fixed, but variable.

In the short term, there is no change in fixed costs depending on changes in output volumes. To measure them in the short term, only three categories are used:

average general;
average constants;
average variables.

The first - the average total - are calculated as a quotient: the value of the total costs divided by the number of products produced. Their average constant varieties are determined by the following formula: AFC \u003d FC / Q, where

AFC - the amount of fixed costs;

FC - total value;

Q - the amount of products produced.

It turns out that all changes in the short term are associated not with a constant, but with a variable. The response of production to a change in variable costs is determined by the law of diminishing marginal productivity, according to which an increase in costs for variable costs from a certain period develops into a decrease in the increase in output. Thus, in the short term of the firm's activity, all production capacities should be considered as a fixed value.

Production cost reduction methods

The problem of costs has always been and is the main task of the company. Its solution provides it not only with profit, but also with the preservation of competitiveness in the market. Any enterprise operates in a macroeconomic environment, so the results of its activities largely depend on similar activities of other economic entities. In this regard, the factors affecting the performance of the company and its profits are divided into external and internal factors. And, accordingly, the methods of reducing these costs, on which profit depends, also boil down to these two factors as a whole.

The main way, as a result of which a decrease in costs is observed, is the introduction of new achievements of scientific and technological progress to ensure resource savings - reducing the cost of materials, for mechanizing production, etc. The experience of organization of production available abroad shows that the use of functional cost analysis in the design of products, organization of production and quality control brings good results.

Paying more attention to the rhythm of output, working on the principle of the timely introduction of related industries, solving the problem of inventories, one can observe a decrease in costs very soon. A new economic presentation has recently appeared on the Internet. "Production Costs and Profits" - this is the name of this educational and methodological guide, built on the principle of alternating theory and examples - an excellent assistant to an entrepreneur in analyzing his company precisely in terms of costs.

On the basis of the program of analysis of economic activity, on which the entire system of cost reduction is built in world practice, a phased reduction in personnel is also expected. In addition, all the company's processes are studied in detail to identify those that need to be automated, or to reduce the number of routine, repetitive operations. According to the results of the analysis of economic activity, the company, having received a stable result, achieves a very specific goal: an increasingly manageable and mobile structure of the company. At the same time, not only costs are significantly reduced, but the budget is saved, and, accordingly, profits increase.

(to simplify, measured in monetary terms), used in the course of the enterprise's business activities at (for) a certain time stage. Often in everyday life, people confuse these concepts (costs, costs and expenses) with the purchase price of a resource, although such a case is also possible. Costs, costs and expenses have historically not been separated in Russian. 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 includes both Russian and continental, which rests on German developments. The continental approach structures the content of costs in more detail and therefore is becoming more common all over the world creating a qualitative basis for tax, accounting and management accounting, costing, financial planning and controlling.

cost theory

Clarifying the definition of concepts

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

In economics, there are four main levels of value flows in relation to liquidity (in the image from bottom to top):

1. Equity level(cash, highly liquid funds (checks ..), operational settlement accounts in banks)

payments And payments

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

Movement at a given level is determined costs and (financial) receipts

3. Production capital level(2. Level + production necessary subject capital (material and non-material (for example, a patent)))

Movement at a given level is determined costs And production income

4. Net worth level(3. Level + other subject capital (tangible and non-material (for example, accounting program)))

Movement at a given level is determined expenses And income

Instead of the level of net capital, you can use the concept total capital level, if we take into account other non-subject 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 numbered in the picture.

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

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

1) costs, not payments: the appearance of credit debt (= the appearance (of US) of a debt to other participants)

6) payments, non-receipt: input of receivables (= "partial" repayment of debt by other participants for a product / service sold (by NAMI)

2) receipts, not payments: the appearance of receivables (=provision (by NAMI) of installments to pay for the product / service to other participants)

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

10) costs, not costs: payment for credited materials that are still in stock (=payment (by NAMI) on debit regarding "stale" materials or products)

3) expenses, not expenses: issuance of unpaid materials from the warehouse (in (OUR) production)

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

5) revenues, non-revenues: the launch of a self-produced installation (= "indirect" future incomes will create an inflow of value of 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 associated activities of the enterprise:

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

9) costs, not costs: calculation costs (=write-offs, interest on equity, renting out the company's own real estate, owner's salary and risks)

8) income, non-productive income: neutral income (=income of other periods, non-productive income and unusually high income)

It was not possible to find production incomes that would not be incomes.

financial balance

Foundation of financial balance Any organization can be simplified to name the following three postulates:

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

Costs are the "core" of costs (the organization's main negative value stream). Production (basic) income can be attributed to the "core" of income (the main positive value stream of the organization), based on the concept of specialization (division of labor) of organizations in one or more types of activities in society or the economy.

Cost types

Third-party company services
Other

More detailed cost structuring is also possible.

Cost types

Influence on the cost of the final product
- indirect costs
According to the relationship with the loading of production capacities
Relative to the production process
- Production costs
- Non-manufacturing costs
By constancy in time
- time-fixed costs
- episodic costs over time
By type of cost accounting
- accounting costs
- calculator costs
By subdivisional proximity to manufactured products
- overhead costs
- general business expenses
By importance to product groups
- group A costs
- group B costs
In terms of importance to manufactured products
- product 1 costs
- product 2 costs

Importance for decision making
- relevant costs
- irrelevant costs
By disposability
- avoidable costs
- fatal costs
Adjustability
- adjustable
- unregulated costs
Possible return
- return costs
- sunk costs
By behavior of costs
- incremental costs
- marginal (marginal) costs
Cost to quality ratio
- corrective action costs
- preventive action costs

Sources

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

A bit of theory

Production costs, according to a common interpretation among Russian economists, are the costs of an enterprise associated with the acquisition of so-called "factors of production" (resources without which it is impossible to produce a product). The lower they are, the more economically profitable the business is.

Production costs are measured, as a rule, in relation to the total cost of the enterprise. In particular, a separate class of expenses may be those associated with the sale of manufactured products. However, it all depends on the methodology used in classifying costs. What are the options here? Among the most common in the Russian marketing school there are two of them: the methodology of the "accounting" type, and the one that is called "economic".

According to the first approach, production costs are the total set of all actual expenses associated with the business (purchase of raw materials, rent of premises, payment of utilities, compensation of personnel, etc.). "Economic" methodology involves the inclusion of those costs, the value of which is directly related to the lost profits of the company.

In accordance with popular theories, which Russian marketers adhere to, production costs are divided into fixed and variable. Those that belong to the first type, as a rule, do not change (if we talk about short-term time periods) depending on the increase or decrease in the rate of output of the goods.

fixed type costs

Fixed production costs are, most often, such items of expenditure as rent of premises, remuneration of administrative personnel (managers, leaders), obligations to pay certain types of contributions to social funds. If they are presented in the form of a graph, it will be a curve that is directly dependent on the volume of production.

As a rule, business economists calculate the average costs of production from those that are fixed. They are calculated based on the volume of costs per unit of manufactured goods. Usually, as the volume of output of goods increases, the "schedule" of average costs descends. That is, as a rule, the greater the productivity of the factory, the cheaper the unit product.

variable costs

The production costs of the enterprise, which are related to variables, in turn, are very susceptible to changes in the volume of output. These include the cost of purchasing raw materials, paying for electricity, and compensating staff at the level of specialists. It is understandable: more material is needed, energy is wasted, new personnel are needed. A graph showing the dynamics of variable costs is usually unstable. If a company is just starting to produce something, then these costs usually increase more actively in comparison with the rate of increase in production.

But as soon as the factory reaches a sufficiently intensive turnover, then the variable costs, as a rule, do not grow so actively. As in the case of fixed costs, the second type of cost is often calculated as an average - again, relative to the output of a unit of output. The total of fixed and variable costs is the total cost of production. Usually they just add up mathematically when analyzing the economic performance of a company.

Costs and depreciation

Such phenomena as depreciation and the closely related term "wear and tear" are directly related to production costs. Through what mechanisms?

First, let's define what wear is. This, according to the interpretation common among Russian economists, is a decrease in the value of production resources in force. Depreciation can be physical (when, for example, a machine or other equipment simply breaks down or cannot withstand the previous rate of production of goods), or moral (if the means of production used by the enterprise, say, are much inferior in efficiency to those used in competing factories ).

A number of modern economists agree that obsolescence is a fixed cost of production. Physical - variables. The costs associated with maintaining the volume of output of goods, subject to wear and tear of equipment, form the same depreciation charges.

As a rule, this is due to the purchase of new equipment or investments in the repair of the current one. Sometimes - with a change in technological processes (for example, if a machine producing spokes for wheels fails at a bicycle factory, then their production can be given temporarily or on an indefinite basis to "outsourcing", which, as a rule, increases the cost of production of finished products).

Thus, timely modernization and purchase of high-quality equipment is a factor that significantly affects the reduction of production costs. Newer and more modern technology in many cases involves lower depreciation costs. Sometimes the costs associated with the wear and tear of equipment are also affected by the qualifications of the personnel.

As a rule, more experienced craftsmen handle the technique more carefully than beginners, and therefore it may make sense to invest in inviting expensive, highly qualified specialists (or invest in training young ones). These costs may be lower than the investment in depreciation of equipment heavily exploited by inexperienced newcomers.