The expenses of any enterprise include the so-called forced costs. They are associated with the acquisition or use of different means of production.
Cost classification
All costs of the enterprise are divided into variables and fixed. The latter include payments that do not affect the volume of production. Accordingly, we can say what expenses are not related to variables . Among them, in particular, are the costs of renting premises, management expenses, payment of risk insurance services, interest payments on the use of credit funds, etc.
What costs relate to variable costs ? This category of costs includes payments that directly affect the volume of production. Variable costs include the costs of raw materials and supplies, staff remuneration, packaging, logistics, etc.
Fixed costs always exist, throughout the entire operation of the enterprise. Variable costs, in turn, are absent when the production process is stopped.
This classification is used to determine the development strategy of the company over a certain period.
In the long run, all kinds of costs may relate to variable costs . This is due to the fact that all of them to some extent affect the volume of finished products and profit from the production process.
Value of costs
For a relatively short period, the enterprise will not be able to radically change the method of production of goods, the parameters of capacities or to begin production of alternative products. However, during this time, variable cost indices can be adjusted. This, in fact, is the essence of cost analysis. The head, adjusting individual parameters, changes the volume of production.
It is impossible to significantly increase the number of products produced by adjusting this index. The fact is that at a certain stage of increasing only those costs that relate to variable costs , it will not lead to a significant jump in growth rates - some of the fixed costs must also be adjusted. In this case, you can rent additional production facilities, launch another line, etc.
Types of variable costs
All costs that relate to variable costs are divided into several groups:
- Specific. This category includes costs that arise after the creation and sale of one unit of goods.
- Conditional. Conditionally variable costs include all costs directly proportional to the current amount of output.
- Average variables. This group includes the average values of unit costs taken over a certain period of time of the enterprise.
- Direct variables. This type of costs relates to the production of products of a particular type.
- Limit variables. These include the costs incurred by the enterprise in the production of each additional unit of goods.
Material costs
To variable costs include costs included in the cost of the final (finished) product. They reflect the cost of:
- Raw materials / materials obtained from third-party suppliers. These materials or raw materials must be used directly in the production of products or be part of the components necessary for its creation.
- Works / services provided by other business entities. For example, the company used the control system supplied by a third-party organization, the services of a repair team, etc.
Implementation costs
Variables include logistics costs . This, in particular, is about transportation costs, costs of accounting, movement, write-off of values, costs of delivery of finished products to warehouses of trading enterprises, to retail outlets, etc.
Depreciation deductions
As you know, any equipment used in the production process wears out over time. Accordingly, its effectiveness is reduced. In order to avoid the negative impact of moral or physical depreciation of equipment on the production process, the company transfers a certain amount to a special account. At the end of their useful life, these funds can be used to upgrade obsolete equipment or purchase new ones.
Deduction is carried out in accordance with depreciation rates. The calculation is based on the book value of fixed assets.
Amortization is included in the cost of finished products.
Staff remuneration
To variable costs include not only the direct earnings of employees. They also include all mandatory contributions and contributions established by law (amounts in FIU, MHIF, individual income tax).
Payment
A simple summation method is used to determine the amount of costs. It is necessary to add up all the costs incurred by the enterprise during a certain time. For example, the company spent:
- 35 thousand rubles on materials and raw materials for output.
- 20 thousand rubles - for the purchase of containers and logistics.
- 100 thousand rubles - to pay salaries to employees.
Adding indicators, we find the total amount of variable costs - 155 thousand rubles. Based on this value and the volume of production, you can find their specific share in the cost.
Suppose an enterprise has produced 500 thousand products. Unit costs will be:
155 thousand rubles / 500 thousand units = 0.31 rub.
If the company produced 100 thousand more goods, the share of expenses will decrease:
155 thousand rubles / 600 thousand units = 0.26 rub.
Break even
This is a very important indicator for planning. It represents the state of the enterprise in which production is carried out without loss to the company. This condition is ensured by the balance of variables and fixed costs.
Break-even point must be determined at the planning stage of the production process. This is necessary so that the management of the enterprise knows what minimum quantity of products needs to be released so that all costs are paid off.
Take the data from the previous example with a few additions. Suppose the amount of fixed costs is 40 thousand rubles, and the estimated cost of a unit of goods is 1.5 rubles.
The value of all costs will be - 40 + 155 = 195 thousand rubles.
The breakeven point is calculated as follows:
195 thousand rubles / (1.5 - 0.31) = 163 870.
It is precisely so many units of production that an enterprise must issue and sell in order to cover all costs, that is, exit to zero.
Variable cost rate
It is determined by the estimated profit when adjusting the amount of production costs. For example, with the commissioning of new equipment, the need for the same number of employees will disappear. Accordingly, the volume of the wage fund may be reduced in connection with a decrease in their number.