For the purposes of control and planning of economic activity, the classification of enterprise costs by type of cost is used. A change in the volume of production of marketable products leads to a corresponding decrease or increase in the level of some of these types. So, variable costs always become different with changes in output. They include the costs of materials, raw materials, labor costs of the main employees of the enterprise, fuel and energy, intended for the process of production of marketable products.
All variable costs - this is the type of expenses of the enterprise, the main feature of which is their complete disappearance upon suspension of production. Some people believe that such costs grow only linearly (in direct proportion) with the growth of output and sales of products. This approach is based on the calculation of the “breakeven point” of production, which suggests that variable costs necessarily increase in proportion to the growth in production.
The break-even point can be determined in units of goods, in monetary terms, taking into account the expected profit. It represents the minimum income upon receipt of which all production costs are fully paid off during the sale of products, but in this case there is no profit. Break-even point is calculated using information about all the variable and constant costs of production and volumes of its sales for a certain period of time:
Break-even point = (Fixed costs / (Sales revenue - Variable costs)) x Sales revenue.
This indicator is a criterion that assesses the effectiveness of the enterprise.
It so happens that variable costs do not always increase in proportion to the increase in output. So, for example, in the production of products that are created by workers employed on the night shift, the growth of variable costs will be higher than similar ones produced on the day shift. They will differ by the amount of "night" hours, which are paid higher than daytime hours.
Variable costs are divided into the following types:
- Proportional: increasing at the same rate as the volume of output and sales. So, with an increase in output by 10%, such costs will also increase by 10%.
- Progressive: grow much faster than output. For example, with a 10% increase in output, they increase by 15%.
- Regressive: the growth rate of such costs lags behind the increase in output. So, with an increase in production by 10%, these costs can grow by only 8%.
Variable costs are attributed to the cost of a particular product (service, work) for its intended purpose, since most of these basic costs are considered direct. The total value of variable costs increase or decrease, respectively, with an increase or decrease in the volume of output of goods. Up to a certain point in increasing volumes, variable costs increase slowly, but then, according to the law of diminishing returns, they begin to increase rapidly. This means that the production of each subsequent unit of manufactured goods requires more variable resources.
Unit variable costs are specific materials, raw materials associated with the unit of goods sold. They cannot include the overhead of an enterprise.
There is such a form as conditionally variable costs. They change their value in different proportions to the change of such indicators as the volume of production and sale of products, economic activity of the enterprise. These include expenses on materials, raw materials, the wages of production workers, maintenance and repair of equipment, low-value and rapidly wearing tools, depreciation charges, and power energy.