Let's talk about costs, cost formulas and why they are used

In this article you will learn about costs, cost formulas, and also understand the meaning of their division into different types.

The costs are called such money resources,which must be spent to carry out economic activities. Analyzing the costs (cost formulas are given below), one can draw a conclusion about the effectiveness of enterprise management of its resources.

Such production costs are divided into several types, depending on how they are affected by changes in production volumes.

Constant

Constant costs include suchcosts, the amount of which is not affected by the volume of products. That is, their value will be the same as when the company is working in a strengthened mode, fully using production facilities or, conversely, during production downtime.

For example, such costs can beadministrative or any separate items from the sum of general production expenses (office rent, expenses for the maintenance of the engineering personnel, not connected with the production process), staff salaries, contributions to insurance funds, license costs, software and others.

It should be noted that in fact, absolutelyConstant such costs can not be called. Still, the volume of production can affect them, though not directly, but indirectly. For example, an increase in the volume of output may require an increase in free space in warehouses, additional maintenance mechanisms that wear out more quickly.

Often in the literature, economists often use the term "conditionally fixed production costs".

Variables

Unlike fixed costs, variable costs directly proportional to the volume of output.

In this form, you can include raw materials, materials,other resources that are involved in the production process, electricity and many other types of costs. For example, if you increase the production of wooden boxes by 100 units, you need to purchase the appropriate amount of material from which they will be produced.

The same costs can relate to different types

And the same costs can relate todifferent types, and, accordingly, it will be different costs. The cost formulas for calculating such costs absolutely confirm this fact.

Take, for example, electricity. Light lamps, air conditioners, fans, computers - all this equipment, which is installed in the office, works at the expense of electricity. Mechanical equipment, machines and other equipment that participates in the production of goods, products, also consumes electricity.

At the same time in the financial analysis, electricityis clearly divided and relates to different types of costs. Because to perform the correct forecasting of future costs, as well as accounting for current costs, it is necessary to have a clear separation of processes depending on the intensity of production.

Total production costs

The sum of variables and fixed costs is called "total costs". The calculation formula is as follows:

Io = Ip + Iper,

Where:

Io - total costs;

Ip - fixed costs;

Iper - variable costs.

With the help of this indicator, a commonlevel of costs. His analysis in the dynamics allows you to see the processes of optimization, restructuring, reducing or increasing the volume of production and management processes in the enterprise.

Average production costs

By dividing the sum of all costs per unit of output, you can find out the average costs. The calculation formula is as follows:

Is = Io / Op,

Where:

Average costs;

Op is the volume of products produced.

This indicator is also called "completecost of one unit of products produced. " Using such an indicator in economic analysis, one can understand how effectively the enterprise uses its resources for production. Unlike the general, the average costs, the formula for calculating which is given above, show the effectiveness of financing per unit of output.

Marginal Costs

To conduct a feasibility studythe quantity of output produced is used by an indicator that reflects production costs per additional unit. It is called "marginal cost". The calculation formula is as follows:

Ipr = (Io2 - Io1) / (Op2 - Op1),

Where:

Ypres - marginal costs.

This calculation will be very useful if the management personnel of the enterprise has made a decision to increase the volume of production, expansion and other changes in production processes.

So, after you have learned about the costs,cost formula, it becomes clear why in economic analysis the costs for the main production, administrative and managerial, and also general production costs are clearly divided.