CHAPTER 4. BUSINESS PLANNING
4.2. Planning the product range depending on the volume of output
In Section 4.1, we considered profit planning based on full cost allocation and depending on both sales volume and production volume.
As is known, calculation- this is a way of grouping costs and determining the cost of products or services of a specific specific use value, as well as a set of methods for accounting for production costs. The latter include the organization of analytical accounting production costs, distribution of income, exclusion or collection of costs and a number of other procedures.
In economic practice, the word "calculation" refers to the calculation of the costs of the enterprise per unit of output. Calculation- one of the main indicators expressing the costs of the enterprise in monetary form for the production and sale of a unit of a specific type of product, as well as for the performance of a unit of work.
In a market economy, forecasting of future expenses and incomes is widely used on the basis of calculating the cost of production according to variable costs. The essence of this method is that the costs of the enterprise are divided into constants and variables depending on the degree of their response to changes in the scale of production.
The basis of fixed costs is the costs associated with the use of fixed assets (fixed capital). These include the cost of depreciation of fixed assets, rent industrial premises, as well as salaries of management personnel, deductions for social needs this staff. The basis of variable costs are the costs associated with the use of working capital(working capital). These include the costs of raw materials, materials, IBE, fuel, wages of production workers and deductions for their social needs.
Thus, costs that change in proportion to the increase (decrease) in the volume of production refer to variable costs . An increase in the volume of production activity, for example, by a factor of two, will also cause an increase in variable costs by a factor of two. Consequently, variable costs have a linear dependence on the volume of production (Fig. 4.2, A). Variable costs, calculated per unit of output, are a constant value. On fig. 4.2, b the dynamics of variable costs is shown, where the variable costs per unit of production conditionally remain at the level of 10 thousand rubles.
Costs that do not directly depend on the volume of production, the specific size of which in the cost price will decrease with an increase in production volume, and increase with a decrease, refer to fixed costs . They are calculated in equal shares for equal periods of time. However, the fixed costs calculated per unit of output increase or decrease with changes in the volume of production.
For example, if the fixed costs for one month are 5 thousand rubles, then the fixed costs per unit. products will change as follows:
On fig. 4.3. graphs of the dependence of the total value of fixed costs are presented (Fig. 4.3, A) and fixed costs per unit of output (Fig. 4.3, b) on the volume of production.
It must be emphasized that the total fixed costs, being a constant value and not depending on the volume of production, can change under the influence of other factors. For example, if prices rise, total fixed costs also rise.
In addition to fixed and variable costs, there are also mixed (semi-fixed) costs, including fixed and variable components. Some of these costs change with an increase (decrease) in the volume of production, the other - regardless of the volume of production remains fixed during the reporting period. For example, a monthly phone charge includes a fixed subscription fee and a variable that depends on the number and length of long-distance calls. telephone conversations. Another example of such costs can be the costs of maintaining and operating official cars on the balance sheet. entrepreneurial organization And serving workers administration of this organization. In these costs, a constant element is depreciation deductions and wages (with deductions for social needs) of employees servicing passenger cars, and a variable element is the cost of fuel, the cost of maintenance and current repairs, depending on the intensity of use of vehicles.
The method of calculation by the amount of coverage provides for the calculation of only variable costs associated with the production and sale of a unit of output. It is based on the calculation of the average variable costs and the average coverage, which represents the gross profit and can be calculated as the difference between the price of the product and the sum of the variable costs.
Limiting the cost of production only to variable costs simplifies the rationing, planning, and control due to the sharply reduced number of cost items. advantage this method accounting and costing is also a significant reduction in the complexity of accounting and its simplification. In addition, the division of costs into fixed and variable is important for managing and analyzing the activities of a construction organization, in particular, for making decisions on assortment policy, as well as closing or declaring bankruptcy in case of unprofitable activities. For an enterprise in the authorized capital of which there is a share of foreign investors, the use of this cost accounting method may become necessary as a way to control financial results activities by foreign owners.
When applying the calculation method by the amount of coverage, it is advisable to use such indicators as the amount of coverage (marginal income) and the coverage ratio.
The coverage amount (marginal income) is the difference between the sales proceeds and the total amount of variable costs. The amount of coverage can be calculated in another way - as the sum of fixed costs and profits. The calculation of the amount of coverage allows you to determine the funds of the enterprise received by it in the sale of its products in order to recover fixed costs and make a profit. Thus, the amount of coverage shows the overall level of profitability, both for the entire production and for individual products: the higher the difference between the selling price of the product and the sum of variable costs, the higher the amount of its coverage and the level of profitability.
The coverage ratio is the share of the coverage amount in the sales proceeds or the share of the average coverage in the price of the goods.
It is also important to determine at what volume of sales the gross costs of the enterprise will pay off. For this, it is necessary to calculate breakeven point, at which revenue or production is assumed to cover all costs and zero profit. Those. the minimum amount of revenue from product sales, at which the profitability level will be more than 0.00%. If a business earns more than the breakeven point, then it is profitable. By comparing these two values of revenue, one can estimate the allowable decrease in revenue (sales volume) without the danger of being at a loss. The revenue corresponding to the break-even point is called threshold revenue. The volume of production (sales) at the break-even point is called production threshold(sales). The threshold sales volume depends on the price of products sold.
To find the break-even point, it is necessary to answer the question: to what level should revenue fall in order for profit to become zero? In this case, you cannot simply add the variable and fixed costs, since with a decrease in production volumes, variable costs also decrease. To solve this problem, you can use the break-even point formula:
To assess how much the actual revenue exceeds the break-even revenue, it is necessary to calculate the margin of safety (percentage deviation of the actual revenue from the threshold):
To determine the impact of a change in revenue on a change in profit, the indicator of production leverage is calculated:
The higher the effect of production leverage, the more risky in terms of reducing profits is the position of the organization. To illustrate this method of calculation, let us turn to an example from the production practice of CJSC Stroyresurs, which produces materials for partitions: gypsum-fiber boards, self-adhesive tapes for gypsum board and reinforcement for drywall.
In foreign practice, for the division of costs into fixed and variable, there are a number of effective practical methods:
· the method of the highest and lowest points of production for the reporting period;
the method of statistical construction of the estimated equation;
graphic method, etc.
To separate the total costs into fixed and variable, we use the method of the highest and lowest points, which involves the following algorithm:
1. Among the data on production volumes various kinds construction products and the cost of their production, the maximum and minimum values are selected.
2. Differences are found between the maximum and minimum values of production volume and costs.
3. The rate of variable costs per product is determined by referring the difference in cost levels for a period to the difference in production levels for the same period.
4. The total value of variable costs for the maximum and minimum volume of production is determined by multiplying the rate of variable costs by the corresponding volume of production.
5. The total value of fixed costs is determined as the difference between all costs and the value of variable costs.
The minimum volume of production falls on the production of gypsum-fiber boards - 500 pcs., The maximum - on the production of fittings for drywall - 1600 pcs. The minimum and maximum costs for the production of boards and strips for drywall, respectively, are 26315 rubles. (52.63 rubles x 500 pieces) and 64830 rubles. (64.83 rubles x 1000 pcs.). The difference in production levels is 1100 pieces. (1600 - 500), and in cost levels - 38515 rubles. (64830 - 26315). The rate of variable costs per product will be 35.01 rubles. (38515 / 1100). The total variable costs for the minimum volume of production will be 17503 rubles. (35.01 x 500), and for the maximum volume - 56018 rubles. (35.01 x 1600). The total value of fixed costs: 64830 - 56018 or 26315 - 17503. Thus, for our example, the value of fixed costs will be 8812 rubles. The total value of variable costs will be 133133 rubles. and they will be distributed among the manufactured types of construction products in proportion to the total cost of each type of product. The initial data for the example are summarized in Table. 4.8.
As can be seen from Table. 4.8., profit per unit of tape is a negative value. However, before deciding to exclude this type of construction product from the range, it is necessary to calculate the profit of an entrepreneurial organization from the sale of all types of products produced. At the same time, it is important that the amount of revenue exceeds the amount of variable costs.
In the example under consideration, the total proceeds from the sale of three types of construction products is 156,400 rubles. (31500 + 64100 + 60800), the total costs of the enterprise are 141945 rubles. (126760 + 15185). Profit from the sale of all types of construction products is 14455 rubles. (156400 - 141945).
Let's group the received data as follows:
Sales proceeds, rub. 156400
Variable costs, p. 133133
fixed costs, R. 8812
The amount of coverage, rub. (items 1 – 2) 23267
Coverage ratio, p. (clause 4/1) 0.15
Threshold revenue, rub. (clause 3/5) 58746.67
Margin of safety, % (pp. (1 - 6) / 1 ´ 100) 62.44
Profit, r. 14455
The effect of the production lever, (clauses 4/8) 1.61
Let's see how the profit of the enterprise will change if the production of unprofitable tapes for drywall is abandoned. In this case, the company's revenue will be reduced by the amount of revenue from the sale of this type of product and its size will be: 156,400 rubles - 64,100 rubles = 92,300 rubles.
At the same time, the total costs of the enterprise will also be reduced by the amount of variable costs necessary for the production and sale of tapes. This value will be equal to 60810 r. (60.81 rubles x 1000 pcs.) Since fixed costs do not depend on the amount of revenue, the refusal to produce tapes will not affect their total value.
Thus, the total costs of the enterprise without the production of tapes for drywall will be 81135 rubles. (141945 - 60810). And the organization will not receive a loss in the course of its activities (92300–81135 = 11165 rubles). The use of the method of calculating the average value of the coating makes it possible to make a decision on the advisability of further production of tapes for gypsum board.
As can be seen from Table. 4.9, for all three types of products, the average coverage is positive. If the enterprise reduces the production of plasterboard tapes by one unit, it will lose 3.29 rubles. from covering fixed costs. The exclusion from production of the entire volume of production of these tapes will lead to losses in the amount of 3290 rubles. (1000 x 3.29). From the foregoing, we can conclude that self-adhesive tapes for drywall should be kept in stock.
Thus, it is not always advisable to make a decision based only on the value of total costs and profit per unit of output, because in the end result the enterprise may lose profit.
Now let's consider a situation where an enterprise plans to release a new product - a ceiling profile in the amount of 1700 pcs. at a price of 33.20 rubles. for 1 piece However, the production facilities of this organization are suitable for the production of only 4000 pieces. products. And if it is going to establish the production of ceiling profiles, it will have to abandon the production of 800 pieces. other products. The question arises: should we introduce into the assortment new products, and if so, which products should be cut?
The average value of variable costs for a new type of product is 25.14 rubles. Then the average coverage is equal to 8.06 rubles. (33.2 - 25.14). The increase in the profit of the enterprise due to the production of a ceiling profile will amount to 13,702 rubles. (1700 x 8.06). Among all types of products produced by the enterprise, the smallest average coating value is for plasterboard tapes (3.29 rubles). If you refuse to produce 800 pcs. tapes, the organization will lose 2632 rubles, at the same time, the enterprise will additionally receive 13702 rubles from the production of ceiling profiles. The company's gain from a change in the assortment will be 11,070 rubles. (13702 - 2632).
How will the margin of safety, the effect of the production leverage and the profit of the enterprise change if the production of ceiling profiles is included in the assortment? Let's calculate:
1. Sales proceeds, rub. 182440
500 x 63.00 + 1000 x 64.10 + 800 x 38.00 + 1700 x 33.20.
2. Variable costs, p. 154127
162939 (total cost) – 8812 (fixed costs).
3. Fixed costs, p. 8812
4. Amount of coverage, p (pp. 1 - 2) 28313
5. Coverage ratio (points 4 / 1) 0.16
6. Threshold revenue, rub. (items 3 / 5) 55075
7. Margin of safety, % (pp. 1 - 6 / 1 x 100) 69.81
8. Profit, p. 19501
9. The effect of production leverage (points 4 / 8) 1.45
The given data show that as a result of updating the assortment, the position of the enterprise has improved:
profit increased from 14455 p. until 19501 p. ;
· the share of profit in sales proceeds increased by 1.45 points (10.69% - 9.24%);
margin of safety increased by 7.37% (69.81 - 62.44);
· the effect of the production lever decreased by 0.16 points (from 1.61 to 1.45).
Thus, in a variable costing system, profit is shown as a function of sales volume, while in a full distribution system, it depends on both production and sales.
Both considered systems have their advantages and disadvantages. So, for example, when production exceeds sales, a full cost allocation system will show higher profits. If sales exceed production, the higher profit will be reflected in variable costing. However, when calculating the cost of variable costs, information for making a decision can be obtained with a much smaller number of calculations.
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Cost price- the initial cost of those costs incurred by the enterprise for the production of a unit of output.
Price- the monetary equivalent of all types of costs, including some types of variable costs.
Price- the market equivalent of the generally accepted value of the product offered.
production costs- these are expenses, cash expenditures that must be made to create. For (the company) they act as payment for acquired.
Private and public costs
Costs can be viewed from different perspectives. If they are examined from the point of view of an individual firm (individual manufacturer), we are talking about private costs. If the costs are analyzed from the point of view of society as a whole, then there is, as a consequence, the need to take into account social costs.
Let us clarify the concept of external effects. In market conditions, a special relationship of sale and purchase arises between the seller and the buyer. At the same time, relations arise that are not mediated by the commodity form, but that have a direct impact on people's well-being (positive and negative externalities). An example of positive externalities is spending on R&D or training of specialists, an example of a negative externality is compensation for damage from environmental pollution.
Public and private costs coincide only in the absence of external effects, or if their total effect is equal to zero.
Public costs = Private costs + Externalities
Fixed Variables and Total Costs
fixed costs- this is a type of cost that an enterprise incurs within one. Determined by the company itself. All these costs will be typical for all cycles of production of goods.
variable costs- these are the types of costs that are transferred to the finished product in full.
General costs- those costs incurred by the enterprise during one stage of production.
General = Constants + Variables
opportunity cost
Accounting and economic costs
Accounting costs is the cost of the resources used by the firm at their actual acquisition prices.
Accounting costs = Explicit costs
economic costs- this is the cost of other goods (goods and services) that could be obtained with the most profitable of the possible alternative uses of these resources.
Opportunity (economic) costs = Explicit costs + Implicit costs
These two types of costs (accounting and economic) may or may not coincide with each other.
If resources are bought in a free competitive market, then the actual equilibrium market price paid for their acquisition is the price best alternative(If this were not the case, then the resource would go to another buyer).
If resource prices are not equal to equilibrium due to market imperfections or government intervention, then actual prices may not reflect the cost of the best of the rejected alternatives and may be higher or lower than the opportunity cost.
Explicit and implicit costs
From the division of costs into alternative and accounting costs, the classification of costs into explicit and implicit follows.
Explicit costs are determined by the amount of costs for paying for external resources, i.e. resources not owned by the firm. For example, raw materials, materials, fuel, work force etc. Implicit costs are determined by the cost of internal resources, i.e. resources owned by the firm.
An example of an implicit cost for an entrepreneur would be the salary that he could receive while working for hire. For the owner of capital property (machinery, equipment, buildings, etc.), previously incurred expenses for its acquisition cannot be attributed to the explicit costs of the current period. However, the owner bears implicit costs, since he could sell this property and deposit the proceeds in the bank at interest, or rent it to a third party and receive income.
Implicit costs, which are part of economic costs, should always be taken into account when making current decisions.
Explicit costs Opportunity costs take the form of cash payments to suppliers of factors of production and intermediate products.
Explicit costs include:
- workers' wages
- cash costs for the purchase and rental of machines, equipment, buildings, structures
- payment of transport costs
- communal payments
- payment of suppliers of material resources
- payment for services of banks, insurance companies
Implicit costs is the opportunity cost of using resources owned by the firm itself, i.e. unpaid expenses.
Implicit costs can be represented as:
- cash payments that could be received by the firm with a more profitable use of its assets
- for the owner of capital, implicit costs are the profit that he could receive by investing his capital not in this, but in some other business (enterprise)
Refundable and sunk costs
Sunk costs are considered in a broad and narrow sense.
In a broad sense, sunk costs include those costs that a firm cannot recover even if it ceases to operate (for example, the cost of registering and firms and obtaining a license, training advertising inscription or the name of the company on the wall of the building, the production of seals, etc.). Sunk costs are, as it were, a firm's payment for entering the market or leaving the market.
In the narrow sense of the word sunk costs are the costs of those types of resources that have no alternative use. For example, the cost of specialized equipment, custom-made by the company. Since the equipment has no alternative use, its opportunity cost is zero.
Sunk costs are not included in opportunity costs and do not affect the current decisions of the firm.
fixed costs
In the short run, some resources remain unchanged, while others change to increase or decrease total output.
In accordance with this, the economic costs of the short run are divided into fixed and variable costs. In the long run, this division loses its meaning, since all costs can change (i.e., they are variable).
fixed costs are costs that do not depend in the short run on how much the firm produces. They represent the costs of its fixed factors of production.
Fixed costs include:
- payment of interest on bank loans;
- depreciation deductions;
- payment of interest on bonds;
- management staff salary;
- rent;
- insurance payments;
variable costs
variable costs These are costs that depend on the volume of production of the firm. They represent the costs of the firm's variable factors of production.
Variable costs include:
- fare
- electricity costs
- raw material costs
From the graph we see that the wavy line depicting variable costs rises with an increase in production volume.
This means that as production increases, variable costs increase:
General (gross) costs
General (gross) costs are all costs for this moment the time required for a particular product.
Total cost (, total cost) is the total cost of the firm to pay for all factors of production.
Total costs depend on the volume of products produced, and are determined by:
- quantity;
- the market price of the resources used.
The relationship between the volume of output and the volume of total costs can be represented as a function of costs:
which is the inverse function of the production function.
Classification of total costs
The total costs are divided into:
total fixed costs(!!ТFC??, total fixed cost) is the firm's total costs for all fixed factors of production.
total variable costs(, total variabl cost) is the firm's total costs for variable factors of production.
Thus,
At zero output (when the firm is just starting production or has already ceased operations) TVC = 0, and, therefore, total costs coincide with total fixed costs.
Graphically, the ratio of total, fixed and variable costs can be depicted, just as it is shown in the figure.
Graphical representation of costs
The U-shape of the short-term ATC, AVC and MC curves is an economic pattern and reflects law of diminishing returns, according to which the additional use of a variable resource with a constant amount of a constant resource leads, starting from a certain point in time, to a reduction in marginal returns, or marginal product.
As has already been shown above, marginal product and marginal cost are inversely related, and, therefore, this law of diminishing marginal product can be interpreted as the law of increasing marginal cost. In other words, this means that starting from some point in time, additional use of a variable resource leads to an increase in marginal and average variable costs, as shown in Fig. 2.3.
Rice. 2.3. Average and marginal cost of production
The marginal cost curve MC always crosses the lines of average (ATC) and average variable (AVC) costs at their minimum points, just as average product curve AR always crosses the marginal product MP curve at its maximum point. Let's prove it.
Average total cost ATC=TC/Q.
marginal cost MS=dTC/dQ.
Take the derivative of the average total cost with respect to Q and get
Thus:
- if MC > ATC, then (ATC) "> 0, and the curve of average total costs of ATC increases;
- if MS< AТС, то (АТС)" <0 , и кривая АТС убывает;
- if MC \u003d ATC, then (ATC)" \u003d 0, i.e. the function is at the extremum point, in this case at the minimum point.
Similarly, you can prove the ratio of average variables (AVC) and marginal (MC) costs on the graph.
Costs and price: four models of firm development
An analysis of the profitability of individual enterprises in the short term allows us to distinguish four models for the development of an individual firm, depending on the ratio of the market price and its average costs:
1. If the average total costs of the firm are equal to the market price, i.e.
ATS=R,
the firm earns a "normal" profit, or zero economic profit.
Graphically, this situation is shown in Fig. 2.4.
Rice. 2.4. Normal profit
2. If favorable market conditions and high demand increase the market price so that
ATC< P
then the firm gets positive economic profit, as shown in figure 2.5.
Rice. 2.5. Positive economic profit
3. If the market price corresponds to the minimum average variable costs of the firm,
then the enterprise is located at the limit of expediency continuation of production. Graphically, a similar situation is shown in Figure 2.6.
Rice. 2.6. A firm in a marginal position
4. And finally, if the market conditions are such that the price does not cover even the minimum level of average variable costs,
AVC>P
it is advisable for the firm to close its production, since in this case the losses will be less than if the production activity continues (more on this in the topic "Perfect competition").
There are fixed and variable costs for the production of goods. The first of these is not affected by the level of goods produced, while the second are costs, the magnitude of which is proportional to the volume of production. Let's take a closer look at these types of expenses.
Any company in the course of its activities has to make expenses. Even newly registered firms incur costs. This is due to the fact that the manufacture of goods and their subsequent sale are impossible without making a lot of expenses: opening a bank account, purchasing materials, renting workshops for production, and many others.
Some of them are costs that do not depend on the volume of production. They are called permanent. The main expenses of this group are:
- Payment of interest on loans received;
- Payment for bank services;
- Calculation of depreciation on OS objects;
- Payment for renting premises;
- Communal expenses;
- Others.
Another group of costs are costs, the size of which is proportional to the volume of production of goods. It increases with an increase in the volume of goods produced and decreases with a decrease in the volume of production.
fixed costs
Costs that do not depend on the volume of production are called fixed. The company will incur such costs all the time, regardless of how many units of goods it produces.
Considering that the total cost incurred by a company is calculated by summing all fixed and variable costs, it is safe to say that the total cost of zero production is equal to the amount of fixed costs.
This is because, even if the company does not produce anything, it still needs to pay for the rent of workshops and the salaries of employees in managerial positions.
Volume dependent costs
Costs that depend on the level of production of products include:
- The cost of materials and parts necessary for the implementation of the production process;
- The salary of employees employed in the main production;
- Costs for maintenance and restoration of OS objects;
- Deductions for insurance needs;
- The price of the acquired fixed assets;
- Utility payments;
- Others.
Unit fixed costs
When conducting a cost analysis for a firm of a permanent nature, special attention should be paid to unit costs. They are defined as the amount of fixed costs for one product. Specific fixed costs decrease with the growth of production volume.
Also, fixed costs can be conditionally fixed. This means that at the same level of production of goods, fixed costs can both decrease and increase.
marginal cost
Marginal cost is the cost associated with the production of an additional product. units of goods. This means that marginal cost arises as output increases.
It is not very easy to determine their size, because their components are not only variable costs for one product, but also the share of costs of a conditionally fixed nature, which additionally arises with an increase in the volume of production of goods.
With a new product or service, a company must prepare for a major expense or expense.
Most of all costs are required by a business associated not with services or types of work, but with production. The production of goods is considered the most costly activity in the goods market.
In production costs, if we consider them from the accounting or financial side, it is customary to include the following items of expenditure:
- rent;
- remuneration of the company's personnel;
- housing and communal expenses;
- expenses for the payment and repayment of a loan (if the company has one), etc.
It should also be noted that production costs are included in the cost of production and are taken into account in its calculation and planning. Also, many accountants believe that production costs are precisely those costs that are necessary only for the production of goods.
Fixed costs of production
Production costs can be classified in different ways. It is generally accepted that there are two main types of costs in the enterprise - these are fixed and variable.
Definition 2
Fixed production costs are such expenses of an enterprise that do not depend on the size of output, not on the structure of products, etc.
It should be noted that any enterprise has fixed costs, and they are considered the most “inefficient” from an economic point of view, since they do not carry a semantic load. That is, even if the production process is not carried out by the company, then the company still has and will have fixed costs.
So, it is customary to attribute to fixed costs: insurance payments to company employees, payments on loans (interest), depreciation, interest on shares and bonds, rent of premises, etc.
The volume of production of the enterprise
Under the volume of production of the enterprise, it is customary to consider the result of the production activity of the enterprise, which is expressed in the number of products produced for a certain period of time.
In order to estimate production volumes, various measures are used:
- cost;
- quantitative;
- natural.
The valuation is carried out within the framework of the currency in force in the country and at the enterprise (rubles, euros, dollars, etc.). Quantification indicates how much of the product is produced (kilogram, ton, centner, etc.). But the natural assessment of the volume is within the framework of the nomenclature of the product or its range, the quality of the product, etc.
Dependence of fixed costs on the volume of production
Remark 1
So, the dependence of fixed costs on the volume of production of the company is almost zero, that is, fixed costs practically do not depend on the volume of production.
Fixed costs always exist for a firm, regardless of whether the company has jobs or not.
So, for business start-ups, it is fixed costs that cause fear, since these costs exist separately and are not influenced by internal factors of the company. Such costs are primarily included in the cost of production and most often range from 40-60% of the total costs.
Remark 2
Fixed costs can also vary slightly, but these deviations are minor, for example, if the office is not open for a whole week, then electricity is saved, perhaps salary payments are suspended, but this all generally does not affect the picture of the firm's fixed costs.
A novice businessman needs to come up with measures to reduce fixed costs in order for the business to become successful and profitable.
fixed costs do not depend on the volume of production. These are the costs of operating the building, equipment, rent, administrative and management expenses, and some types of taxes.
variable costs change with the volume of production. These are the costs of raw materials, materials, labor, etc.
General costs are the sum of total fixed and total variable costs.
However, the manufacturer is often interested in the value of not so much total costs as average cost. They represent the quotient of the total cost divided by the volume of production.
Since the sum of fixed costs is constant, then average fixed costs decrease as the volume of production increases. But this happens only up to a certain period, starting from which, with the growth of production volumes, the costs per unit of output will increase. In this regard, they talk about marginal cost, which represent the incremental cost of producing each additional unit of output over a given output.
In the economic practice of our country, to determine the costs of production, the category is used cost. The cost price reflects in cash the current costs of production and sales of products, includes the cost of consumed means of production, funds for wages, indirect costs of the enterprise and sales costs. The composition of the cost does not include one-time expenses, costs not related to the production of products, as well as losses from natural disasters, fines, penalties.
The structure of costs for the production and sale of products by type of economic activity
| Kind of activity | All costs | material costs | labor costs | unified social tax | depreciation of fixed assets | other costs |
| Agriculture, hunting and forestry | 63,0 | 19,3 | 3,0 | 5,3 | 9,4 | |
| Mining | 29,6 | 9,9 | 2,0 | 7,2 | 51,3 | |
| Manufacturing industries | 74,0 | 11,8 | 2,8 | 2,5 | 8,9 | |
| Production and distribution of electricity, gas and water | 61,0 | 13,9 | 3,2 | 5,7 | 16,2 | |
| Construction | 58,7 | 20,4 | 4,6 | 2,5 | 13,8 | |
| Wholesale and retail trade | 51,4 | 9,5 | 1,8 | 9,4 | 27,9 | |
| Transport and communications | 35,6 | 20,1 | 4,5 | 9,6 | 30,2 | |
| Operations with real estate, rent and provision of services | 33,2 | 31,4 | 6,4 | 3,7 | 25,3 | |
| Public administration and military security | 16,1 | 47,3 | 9,6 | 2,7 | 24,3 | |
| Provision of other communal, social and other services | 26,8 | 27,6 | 5,5 | 5,9 | 34,2 |
There are production costs, including the costs of production, and full, which includes the production cost, as well as the costs associated with the sale of products, and some other in-house costs.
In construction, there are estimated, planned and actual costs.
The grouping of costs by elements is cost structure. It includes 4 groups:
1) material costs;
2) wages and various deductions;
3) depreciation of fixed assets;
4) other costs.
The calculation of unit cost of production is called costing.
The main ways to reduce the cost of production are: the growth of labor productivity, the intensification of the use of production capacities and equipment, the growth of product quality, the reduction of costs for maintenance of production and management, the introduction of the achievements of scientific and technical progress.
2. Profit and profitability of production. Breakeven chart.
Profit is the difference between a business's revenue and costs. Two approaches to the concept of profit should be distinguished:
1. Accounting. Profit is the difference between sales revenue and cash (explicit) costs.
2. Economic. Profit is the difference between sales revenue and explicit plus implicit costs. From the accounting profit it is necessary to deduct the interest on capital, established at the given moment by the capital market, the rent for land and premises, and the management fee. The result is economic profit.
The main indicators of profit are:
Total profit of the reporting period - balance sheet profit;
Profit from the sale of products (works, services);
Profit from financial activities;
Profit from other non-operating transactions;
taxable income;
Net profit;
Super profit and monopoly super profit;
Average profit;
marginal profit.
There are also gross profit and net profit. Gross profit is defined as the difference between the selling price of products and the total cost. After paying interest on the loan, taxes, rent, and other payments from the gross profit, there remains net profit.
Net profit is used for the production and social needs of the enterprise, including savings, ecology, training and retraining of personnel, payment of dividends, etc.
To assess the level of efficiency of the enterprise, the indicator is used profitability of production characterizing the profitability or unprofitability of the enterprise for a certain period of time (usually a year). In economic practice, several indicators of profitability are used: profitability of production (planned and actual, total and calculated), profitability of the product (normative and actual).
Overall profitability production is determined by the ratio of gross profit to the average annual cost of production assets and working capital.
Profit growth factors are both those that are directly related to this enterprise (organization of production, scientific and technical progress), and external conditions (changes in the economic situation, obtaining a profitable state order, etc.). Today, ensuring the profitability of the enterprise should be considered as the most important task for the Russian economy.
3. Essence and functions of the price. The essence of the price was studied by various representatives of economic schools and directions, since. a whole system of economic, political and social relations is manifested in price, and with the help of price it is possible to influence these relations.
Bourgeois classical political economy(A. Smith, D. Ricardo) considered the price as a monetary expression of value, and the price of the goods was under the influence of supply and demand, i.e. could be equal to, more or less than the cost. The law of value operates through the mechanism of prices for the development of productive forces, for bringing individual costs closer to socially necessary ones.
Marxist school(K. Marx) in determining the price proceeded from the theory of labor value. K. Marx believed that the structure of the cost of goods produced at a capitalist enterprise includes the costs of constant capital (depreciation, raw materials, materials, etc.) and variable capital (workers' wages). Marx considered the cost of wages to be variable capital, since the advanced part of the capital in the production process not only returns, but also increases due to the creation of surplus value. As a result, the cost of production and profit were included in the price. On the basis of labor value, Marx moved on to the problem of selling commodities not by value, but by price.
Austrian school(Behm-Bawerk, Wieser, Menger) put forward the theory of marginal utility, according to which the value of a product is determined not by labor costs, but by the marginal utility that the product possesses. That is, the price of a commodity depends on its rarity. The theory of the Austrian school was largely subjective in nature. the degree of determination of marginal utility for each product was different, and this made it difficult to apply the provisions of the Austrian school in practice. However, the right step has been taken in the direction of taking into account the properties of the product when determining the price.
A. Marshall set himself the task of reconciling the classics and the Austrian school. He put forward the theory that the value of a commodity depends on supply and demand. Under the influence of competition, an equilibrium price is established in the market, and any deviation in demand or supply dictates a price deviation from the equilibrium price. Marshall, through the category of demand, connected the theory of price with the usefulness of the goods, and supply - with labor costs, i.e. with the theory of labor value. However, he could not answer what underlies the value of a product when demand equals supply.
Price is a category that expresses economic relations between individual industries, regions, classes, individuals. In economics, the essence of price is considered through its features:
1. Accounting. All costs in the enterprise are determined using natural indicators or using prices. With the help of prices, many indicators are determined that cannot be determined through natural meters (production costs, labor productivity growth, the amount of national income).
2. Management. With the help of price, you can predict the development of production at an enterprise, in a region or country. With the help of the price, the development of economic, social, scientific and technical programs and intra-company planning is carried out.
3. Distribution and redistribution. With the help of prices, the state seeks to set higher prices for elite goods and lower prices for essential goods in order to ensure social protection of the population.
4. Stimulating. The price can contribute to the acceleration of scientific and technical progress, the transfer of capital from one industry to another, thereby ensuring the rapid development of certain industries and regions.
5. Limiting. The price can limit the amount of consumption of products and resources that are scarce or harmful to society.
4. Types of prices and methods of pricing. The whole set of prices can be divided into three large blocks:
1. Negotiated prices- These are free market prices established on the basis of an agreement between the buyer and the seller. They, in turn, can be open (specified in accordance with the terms of the contract in the process of production and sale of products) and solid (fixed).
2. State- installed:
For the products of the state enterprises;
For the products of monopoly enterprises;
For products of basic industries (metallurgy, electric power industry);
For products of the military-industrial complex;
For socially important goods (essential goods, medical goods and services, etc.).
State system. pricing includes fixed prices and adjustable prices. State. price regulation consists in setting their limit level or the limit of their deviation from the fixed state. prices.
3. World prices- most objectively express the value of the goods and are characterized by the following features:
The price at which large transactions are carried out on conditions typical for most commodity markets:
Price in transactions where payments are made in a freely convertible currency;
The price used in regular transactions in important markets.
In addition, prices can be:
1) free market prices, monopoly high and monopoly low (see the topic "Competition and monopolies").
2) depending on the volume of sales - wholesale and retail.
3) from the remoteness of the buyer - zonal (FEZ) and zone (natural and climatic zones).
In market conditions, two main pricing systems are used: cost and market.
At cost pricing the company forms the price of goods on the principle of "costs +". Costs are understood as the production costs incurred by the enterprise in the production and sale of products, and under "+" - some profit that the enterprise receives after the sale of products. The formula for determining the price of a product: C=S+P.
Cost pricing is applied if there are a number of factors and conditions:
The firm that sells the product is a monopolist;
In the conditions of an oligopolistic market, the firm enters into an agreement to pursue a single pricing policy;
When the company performs work on individual projects.
Any firm in a market economy seeks to make a profit. Moreover, if the level of profit in one industry is less than in another, then capital will flow into a more profitable one. But on the other hand, so that the prices of goods do not grow and are not economically unjustified, the developed countries regulate the rate of profit with the help of antitrust laws.
In cases where cost pricing cannot be applied, the price is determined by the principle of compliance supply and demand(if supply exceeds demand, then the price falls, and vice versa). Firms operating in a competitive environment cannot build their pricing policy on a cost basis. Only market conditions can answer that the current price ensures the profitability or unprofitability of the enterprise.
When setting prices, the following strategies:
1) focus on the average market prices of goods of this kind;
2) focus on the price leader;
3) demand orientation.
When choosing a strategy, it is necessary to take into account a number of factors:
Entering a new market;
Introduction of a new product;
Protection of the company's positions;
Consistent conquest of market segments;
Setting prices within the product range;
Setting prices for complementary goods;
Setting prices with discounts and offsets.
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