In the process of determining the price of the created product or service, the company takes into account a huge number of elements that somehow affect the final cost of the product. Of these, the prime and most basic is the cost. In the economy, this indicator represents the sum of all costs (fixed as well as variable costs) that the company incurred in the process of creating the final product. It is this economic value that has a decisive influence on the price of the product, because it is the cost price that is the initial parameter on which the remaining quantities are imposed (taxes, interest on sales, etc.). Based on the criteria for the effectiveness of the enterprise, the main goal of any organization producing products or providing services is to reduce costs.
It is possible to reduce the cost by minimizing variable costs - this is the part of the costs that are directly affected by the volume of goods produced. These types of costs include:
- the cost of material resources involved in the production of goods;
- costs of fuel and energy used;
- the wages of the contractor and other personnel, which directly relates to the production process;
- all expenses that are written off for servicing machinery and equipment (not including depreciation).
As an economic category, variable costs of an enterprise can be considered as one of three options:
a) proportional - costs that vary in exactly the same proportion as the volume of production;
b) progressive - a set of costs, the growth rate of which is greater than the growth rate of production;
c) regressive - costs that grow at a slower pace than production volume.
Variable costs are precisely that part of the cost of production that can be reduced through their effective use. A full analysis of consumables and used resources will show ways to reduce costs: the introduction of energy-saving technologies, new machinery and equipment - all this will reduce the amount of fuel, energy consumed, reduce waste from waste and increase the speed of production of a unit of goods.
To determine the profitability of the product of a given quantity of goods allows such a thing as average production costs, including average fixed, as well as average variable costs. This economic indicator gives an idea of how much costs are involved in the production of one copy of the product. The average fixed costs can be calculated as follows: the total amount of fixed costs, which does not depend on the number of products produced by the organization, is divided by the quantity of goods itself.
Thus, costs per unit of output are obtained. In this case, it becomes clear that with an increase in the quantity of goods produced, the size of the average fixed costs decreases. What can not be said about the second indicator, which is part of the average cost.
The average variable costs directly depend on the growth of production: if the volume of production grows, so does the cost, and vice versa. The way to reduce the level of this indicator is innovation and the effective use of tangible and intangible assets of the organization.