For the production of any goods, services, work requires certain labor and material resources. The costs of using and acquiring those in value terms are called production costs.
The volume and magnitude of costs primarily depends on the price set for the acquired resources. The goal of any company is to use the least amount of production resources, minimize costs and maximize profits.
In addition to the costs associated with the release of goods, companies bear the costs of promoting and marketing products on the market. Such costs include the costs of marketing market research, transportation of goods to consumers, organization of advertising and other events. In terms of value, these costs are called selling expenses or production costs.
Also, any company pays fees, taxes, allocates funds to a variety of trust funds, which are also attributed to the internal costs of the enterprise.
Economic theory considers explicit (accounting) and implicit costs, as well as economic.
This difference is especially important for owners who decide where to invest their capital, which option will have the maximum effect or profit.
Accounting includes only explicit costs that are associated with the acquired and used resources. They are reflected in the accounting documents of the organization.
Implicit costs show the opportunity cost of labor and other unacquired resources - capital, land, which the company uses in its work.
Explicit costs include the wages of workers, payment of transportation costs, cash costs associated with the purchase and rental of equipment, machines, structures and buildings. This category includes payment to suppliers of material resources, utility bills, payment of insurance companies and bank services.
Implicit costs include cash assets. The last ones could be obtained by the company with the more advantageous use of its resources. For owners of capital, implicit costs include the profit that could have been obtained by investing not in the current, but in some other enterprise (business).
The alternative cost of a solution is determined by choosing the best of all available solutions. Suppose a person decided to resign from the post of chief mechanic of a state enterprise and organized his own private company. The alternative cost of labor will consist of wages, which had to be abandoned. And the alternative cost of capital invested in your own business is the percentage that could have been received if the money had been placed in a bank or other business, or as dividends from the acquisition of shares.
Economic costs consist of explicit and implicit.
In addition to the above concepts, they also operate in such categories as fixed and variable costs. This is relevant when analyzing the work of the enterprise in the short term. This definition loses meaning in the long run as any costs vary.
Thus, fixed costs are short-term expenses that are not affected by the quantity of products produced. These include costs of constant factors of production. This group includes payment on bank loans, payment of interest on bonds, depreciation, rent, insurance payments, salaries of management personnel.
Variable costs - these are costs that depend on the volume of goods produced. They represent the costs of variable factors of production. These include transportation costs, wages, costs of materials, raw materials and electricity.