The concept of average costs. Average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), concept of marginal cost (MC) and their graphs.
Average costs- this is the value of total costs attributable to the amount of production produced.
Average costs are in turn divided into average fixed costs and average variable costs.
Average fixed costs(AFC) is the quantity fixed costs, per unit of production.
Average variable costs(AVC) is the value variable costs, per unit of production.
Unlike average constants, average variable costs can either decrease or increase as output volumes increase, which is explained by the dependence of total variable costs on production volume. Average variable costs reach their minimum at a volume that provides the maximum value of the average product
Average total costs(ATC) is the total cost of production per unit of output.
ATC = TC/Q = FC+VC/Q
Marginal cost is an increase in total costs caused by an increase in output per unit of output.
The MC curve intersects AVC and ATC at points corresponding to the minimum value of average variables and average total costs.
Question 23. Production costs in the long run. Depreciation and amortization. The main directions of use of depreciation means.
The main feature of costs in the long run is the fact that they are all variable in nature - the firm can increase or reduce capacity, and it also has enough time to decide to leave a given market or enter it by moving from another industry. Therefore, in long term They do not distinguish average fixed and average variable costs, but analyze average costs per unit of production (LATC), which in essence are also average variable costs.
Depreciation of fixed assets (funds) ) – a decrease in the initial cost of fixed assets as a result of their wear and tear during the production process (physical wear and tear) or due to the obsolescence of machines, as well as a decrease in the cost of production in conditions of increasing labor productivity. Physical deterioration fixed assets depends on the quality of fixed assets, their technical improvement (design, type and quality of materials); features of the technological process (speed and cutting force, feed, etc.); the time of their operation (number of days of work per year, shifts per day, hours of work per shift); degree of protection from external conditions (heat, cold, humidity); the quality of care and maintenance of fixed assets, and the qualifications of workers.
Obsolescence– reduction in the value of fixed assets as a result of: 1) reduction in the cost of production of the same product; 2) the emergence of more advanced and productive machines. Obsolescence of means of labor means that they are physically suitable, but economically they do not justify themselves. This depreciation of fixed assets does not depend on their physical wear and tear. A physically capable machine may be so obsolete that its operation becomes economically unprofitable. Both physical and moral wear and tear lead to loss of value. Therefore, each enterprise should ensure the accumulation of funds (sources) necessary for the acquisition and restoration of permanently worn-out fixed assets. Depreciation(from Middle - Century Lat. amortisatio repayment) is: 1) the gradual wear and tear of funds (equipment, buildings, structures) and the transfer of their value in parts to manufactured products; 2) decrease in the value of property subject to tax (by the amount of capitalized tax). Depreciation is due to the peculiarities of the participation of fixed assets in the production process. Fixed assets are involved in the production process for a long period (at least one year). At the same time, they retain their natural shape, but gradually wear out. Depreciation is accrued monthly according to established standards depreciation charges. Accrued depreciation amounts are included in the cost of production or distribution costs and at the same time, through depreciation charges, a sinking fund, used for the complete restoration and overhaul of fixed assets. Therefore, correct planning and actual calculation of depreciation contributes to the accurate calculation of product costs, as well as determining the sources and amounts of financing for capital investments and overhaul fixed assets. Depreciable property Property, results of intellectual activity and other objects of intellectual property are recognized that are owned by the taxpayer and are used by him to generate income and the cost of which is repaid by depreciation. Depreciation deductions – accruals with subsequent deductions, reflecting the process of gradual transfer of the cost of means of labor as they wear out physically and morally to the cost of products, works and services produced with their help for the purpose of accumulation Money for subsequent full recovery. They are accrued both on tangible assets (fixed assets, low-value and wear-and-tear items) and on intangible assets (intellectual property). Depreciation charges are made according to established depreciation rates, their amount is established for a certain period for a specific type of fixed assets (group; subgroup) and is expressed, as a rule, as a percentage per year of depreciation to their book value. Sinking fund – source of major repairs of fixed assets, capital investments. It is formed through depreciation charges. Depreciation problem (depreciation) - to allocate the cost of tangible durable assets to costs over their expected useful life based on the use of systematic and rational records, i.e. it is a process of distribution, not evaluation. IN this definition There are several significant points. First, all durable tangible assets, except land, have a limited service life. Due to their limited service life, the cost of these assets must be spread over the years of their operation. The two main reasons for the limited service life of assets are physical wear and tear (obsolescence). Periodic repairs and careful maintenance can keep buildings and equipment in good condition and significantly extend its life, but eventually every building and every machine must fall into disrepair. The need for depreciation cannot be eliminated by regular repairs. Obsolescence represents the process by which assets fall short of modern requirements due to advances in technology and other reasons. Even buildings often become obsolete before they have time to wear out physically. Secondly, depreciation is not a process of assessing value. Even if, as a result of a profitable transaction and specific features of the market situation, the market price of a building or other asset may rise, despite this, depreciation must continue to be accrued (taken into account), since it is a consequence of the distribution of previously incurred costs, and not an assessment. Determining the amount of depreciation for the reporting period depends on: the original cost of the objects; their liquidation value; depreciable cost; expected useful life.
Enterprise expenses can be considered in the analysis from various points of view. Their classification is made on the basis of various characteristics. From the perspective of the influence of product turnover on costs, they can be dependent or independent of increased sales. Variable costs, the definition of which requires careful consideration, allow the head of the company to manage them by increasing or decreasing sales finished products. That is why they are so important for understanding the proper organization of the activities of any enterprise.
general characteristics
Variables (Variable Cost, VC) are those costs of an organization that change with an increase or decrease in the growth of sales of manufactured products.
For example, when a company ceases operations, variable costs should be zero. In order for a company to operate effectively, it will need to regularly evaluate its costs. After all, they influence the cost of finished products and turnover.
Such points.
- The book value of raw materials, energy resources, materials that are directly involved in the production of finished products.
- Cost of manufactured products.
- Salaries of employees depending on the implementation of the plan.
- Percentage from the activities of sales managers.
- Taxes: VAT, tax according to the simplified tax system, unified tax.
Understanding Variable Costs
In order to correctly understand such a concept as variable costs, an example of their definition should be considered in more detail. Thus, production, in the process of carrying out its production programs, spends a certain amount of materials from which the final product will be made.
These costs can be classified as variable direct costs. But some of them should be separated. A factor such as electricity can also be classified as a fixed cost. If the costs of lighting the territory are taken into account, then they should be classified specifically in this category. Electricity directly involved in the process of manufacturing products is classified as variable costs in the short term.
There are also costs that depend on turnover but are not directly proportional to the production process. This trend may be caused by insufficient (or over) utilization of production, or a discrepancy between its design capacity.
Therefore, in order to measure the effectiveness of an enterprise in managing its costs, variable costs should be considered as subject to a linear schedule along the segment of normal production capacity.
Classification
There are several types of variable cost classifications. With changes in sales costs, they distinguish:
- proportional costs, which increase in the same way as production volume;
- progressive costs, increasing at a faster rate than sales;
- degressive costs, which increase at a slower rate with increasing production rates.
According to statistics, a company's variable costs can be:
- general (Total Variable Cost, TVC), which are calculated for the entire product range;
- average (AVC, Average Variable Cost), calculated per unit of product.
According to the method of accounting for the cost of finished products, a distinction is made between variables (they are easy to attribute to the cost) and indirect (it is difficult to measure their contribution to the cost).
Regarding the technological output of products, they can be production (fuel, raw materials, energy, etc.) and non-production (transportation, interest to the intermediary, etc.).
General variable costs
The output function is similar to variable cost. It is continuous. When all costs are brought together for analysis, the total variable costs for all products of one enterprise are obtained.
When common variables are combined and their total sum in the enterprise is obtained. This calculation is carried out in order to identify the dependence of variable costs on production volume. Next, use the formula to find variable marginal costs:
MC = ΔVC/ΔQ, where:
- MC - marginal variable costs;
- ΔVC - increase in variable costs;
- ΔQ is the increase in output volume.
Calculation of average costs
Average variable costs (AVC) are the company's resources spent per unit of production. Within a certain range, production growth has no effect on them. But when the design power is reached, they begin to increase. This behavior of the factor is explained by the heterogeneity of costs and their increase at large scales of production.
The presented indicator is calculated as follows:
AVC=VC/Q, where:
- VC - the number of variable costs;
- Q is the quantity of products produced.
In terms of measurement, average variable costs in the short run are similar to the change in average total costs. The greater the output of finished products, the more total costs begin to correspond to the increase in variable costs.
Calculation of variable costs
Based on the above, we can define the variable cost (VC) formula:
- VC = Material costs + Raw materials + Fuel + Electricity + Bonus salary + Percentage on sales to agents.
- VC = Gross profit - fixed costs.
The sum of variable and fixed costs is equal to the total costs of the organization.
The calculations of which were presented above participate in the formation of their overall indicator:
Total costs = Variable costs + Fixed costs.
Example definition
To better understand the principle of calculating variable costs, you should consider an example from the calculations. For example, a company characterizes its product output with the following points:
- Costs of materials and raw materials.
- Energy costs for production.
- Salaries of workers producing products.
It is stated that variable costs grow directly proportionally with the increase in sales of finished products. This fact is taken into account to determine the break-even point.
For example, it was calculated that it amounted to 30 thousand units of production. If you plot a graph, the break-even production level will be zero. If the volume is reduced, the company’s activities will move to the level of unprofitability. And similarly, with an increase in production volumes, the organization will be able to receive a positive net profit result.
How to reduce variable costs
The strategy of using “economies of scale”, which manifests itself when production volumes increase, can increase the efficiency of an enterprise.
The reasons for its appearance are the following.
- Using the achievements of science and technology, conducting research, which increases the manufacturability of production.
- Reducing management salary costs.
- Narrow specialization of production, which allows each stage of production tasks to be performed more efficiently. At the same time, the defect rate decreases.
- Introduction of technologically similar product production lines, which will ensure additional capacity utilization.
At the same time, variable costs are observed below sales growth. This will increase the efficiency of the company.
Having become familiar with the concept of variable costs, an example of the calculation of which was given in this article, financial analysts and managers can develop a number of ways to reduce overall production costs and reduce production costs. This will make it possible to effectively manage the rate of turnover of the enterprise’s products.
Instructions
Identify common costs(TCi) for each value of Q according to the formula: TCi = Qi *VC +PC. However, you need to understand that before calculating marginal costs, you must have variable (VC) and fixed (PC) costs.
Determine the change in total costs resulting from an increase or decrease in production, i.e. determine the change in TC - ∆ TC. To do this, use the formula: ∆ TC = TC2- TC1, where:
TC1 = VC*Q1 + PC;
TC2 = VC*Q2 + PC;
Q1 - production volume before change,
Q2 – production volumes after the change,
VC – variable costs per unit of production,
PC – fixed costs of the period required for a given volume of production,
TC1 – total costs before changes in production volume,
TC2 – total costs after changes in production volume.
Divide the increment in total costs (∆ TC) by the increment in production volume (∆ Q) - you will get the marginal cost of producing an additional unit of output.
Draw a graph of changes in marginal costs for different productions - this will give a visual picture of the mathematical structure, which will clearly demonstrate the process of changes in production costs. Pay attention to the MS form on yours! The marginal cost curve MC clearly shows that with all other factors remaining constant, as production increases, marginal costs increase. It follows from this that it is impossible to endlessly increase production volumes without changing anything in production itself. This leads to an unreasonable increase and decrease in the expected one.
Increase production by using intensive methods to increase efficiency: by modernizing production, replacing equipment, changing technologies, and training personnel. Constantly improve your productivity levels.
Recognized as permanent costs, the value and quantity of which does not change over a minimum period of time and regardless of the volume of products sold. Such costs include salaries of management personnel, payment of rent, maintenance of production workshops, payments to creditors, transport costs.
You will need
- calculator
- notepad and pen
Instructions
Calculate permanent costs enterprises for a given period of time. Let the retailer handle the sale of goods. Then her permanent costs will be equal
FC = Y + A + K + T, where
U – salary of management personnel (112 rubles),
A – payments for renting premises (50 thousand rubles),
K – payments on accounts payable, for example, for the purchase of the first batch of goods (158 thousand rubles),
T – transport related to the delivery of goods (190 thousand rubles).
Then FC = 112 + 50 + 158 + 190 = 510 thousand rubles. This must be paid by the trade organization to the relevant authorities or suppliers. Even if the trading organization was unable to sell the goods during the period under consideration, it must pay 510 thousand rubles.
Divide the resulting amount by the quantity of goods sold. For example, a trading organization was able to sell 55 thousand units of goods during the specified period. Then its average permanent costs can be done as follows:
FC = 510 / 55 = 9.3 rubles per unit of goods sold. Constant costs do not depend . With zero implementation permanent costs continue to be equated with mandatory payments. The greater the volume of products sold, the lower the fixed costs. Accordingly, with a decrease in the volume of goods sold permanent costs per unit of production will increase, which may naturally lead to an increase in prices for this product. This is explained by the fact that a larger quantity of goods sold distributes a common constant value among themselves. That is why permanent costs First of all, products are included to cover mandatory expenses.
Sources:
Variables are recognized costs, which directly depend on the volume of calculated production. Variables costs will depend on the cost of raw materials, materials, the cost of electrical energy, and the amount of wages paid.
You will need
- calculator
- notepad and pen
- a complete list of enterprise costs with the indicated amount of costs
Instructions
Add it all up costs enterprises that directly depend on the volume of products produced. For example, the variables of a trading company selling consumer goods include:
Pp – volume of products purchased from suppliers. Expressed in rubles. Let a trade organization purchase goods from suppliers in the amount of 158 thousand rubles.
Uh – to electric. Let a trade organization pay 3,500 rubles for .
Z – the salary of sellers, which depends on the quantity of goods they sell. Let the average wage fund in a trade organization be 160 thousand rubles. Thus, the variables costs trade organization will be equal to:
VC = Pp + Ee + Z = 158+3.5+160 = 321.5 thousand rubles.
Divide the resulting amount of variable costs by the volume of products sold. This indicator can be found by a trade organization. The volume of goods sold in the above example will be expressed in quantitative terms, that is, by piece. Suppose a trading organization was able to sell 10,500 units of goods. Then the variables costs taking into account the quantity of goods sold are equal to:
VC = 321.5 / 10.5 = 30 rubles per unit of goods sold. Thus, variable costs are made not only by adding the organization’s costs for the purchase and goods, but also by dividing the resulting amount by the unit of goods. Variables costs with an increase in the quantity of goods sold, they decrease, which may indicate efficiency. Variables depending on the type of company activity costs and their types may change - added to those indicated above in the example (costs of raw materials, water, one-time transportation of products and other expenses of the organization).
Sources:
- "Economic theory", E.F. Borisov, 1999
Costs production - these are the costs that are associated with the circulation of manufactured goods and production. In statistical and financial reporting, costs are reflected as cost. Costs include: labor costs, interest on loans, material costs, expenses that are associated with promoting a product on the market and selling it.
Instructions
Costs There are variables, constants and . Fixed costs are those costs that in the short term do not depend on how much the company produces. These are the costs of the enterprise's constant factors of production. Total costs are everything that the manufacturer spends for production purposes. Variable costs are those costs that always depend on the volume of the firm's output. These are the costs of variable factors in a firm's production.
Fixed costs are the opportunity cost of the portion of financial capital that was invested in the equipment of the enterprise. The value of this cost is equal to the amount, for which the owners of the company could invest this equipment and the proceeds received in the most attractive investment business (for example, in an account or in the stock exchange). These include all costs of raw materials, fuel, transport services etc. The largest portion of variable costs tends to be materials and labor. Since, as output grows, the costs of variable factors increase, so do variable costs, respectively, with the growth of output.
Average costs are divided into average variable, average fixed and average total. To find the average, you need to divide fixed costs by the volume of output. Accordingly, in order to calculate average variable costs, it is necessary to divide variable costs by the volume of output. To find average total costs, you need to divide total costs (the sum of variable and constant) by the volume of output.
Average costs are used to decide whether a given product needs to be produced at all. If price, which represents average revenue per unit of output produced, is less than average variable cost, then the company will reduce its losses if it suspends operations in the short run. If the price is below average total cost, then the firm is making negative profits and must consider permanent closure. Moreover, if average costs are lower than the market price, the enterprise can operate quite profitably within the limits of its production volume.
Economic and accounting costs.
In economics costs most often referred to as losses that a manufacturer (entrepreneur, firm) is forced to bear in connection with the implementation of economic activities. This could be: the cost of money and time for organizing production and acquiring resources, loss of income or product from missed opportunities; costs of collecting information, concluding contracts, promoting goods to the market, preserving goods, etc. When choosing among different resources and technologies, a rational manufacturer strives for minimal costs, so he chooses the most productive and cheapest resources.
The production costs of any product can be represented as a set of physical or cost units of resources expended in its production. If we express the value of all these resources in monetary units, we obtain the cost expression of the costs of producing a given product. This approach will not be wrong, but it seems to leave unanswered the question of how the value of these resources will be determined for the subject, which will determine this or that line of his behavior. The economist's task is to choose the best option for using resources.
Costs in the economy are directly related to the denial of the possibility of producing alternative goods and services. This means that the cost of any resource equals its cost, or value, given the best of all possible options its use.
It is necessary to distinguish between external and internal costs.
External or explicit costs– these are cash expenses for paying for resources owned by other companies (payment for raw materials, fuel, wages, etc.). These costs, as a rule, are taken into account by an accountant, reflected in the financial statements and are therefore called accounting.
At the same time, the company can use its own resources. In this case, costs are also inevitable.
Internal costs – These are the costs of using the firm's own resources that do not take the form of cash payments.
These costs are equal to the cash payments that the firm could receive for its own resources if it chose the best option for using them.
Economists consider all external and internal payments as costs, including the latter and normal profit.
Normal, or zero, profit - this is the minimum fee necessary to maintain the entrepreneur's interest in the chosen activity. This is the minimum payment for the risk of working in a given area of the economy, and in each industry it is assessed differently. It is called normal for its similarity to other incomes, reflecting the contribution of a resource to production. Zero - because in essence it is not a profit, representing a part of the total production costs.
Example. You are the owner of a small store. You purchased goods worth 100 million rubles. If accounting costs for the month amounted to 500 thousand rubles, then to them you must add lost rent (let’s say 200 thousand rubles), lost interest (let’s say you could put 100 million rubles in the bank at 10% per annum, and receive approximately 900 thousand rubles) and a minimum risk fee (let’s say it is equal to 600 thousand rubles). Then the economic costs will be
500 + 200 + 900 + 600 = 2200 thousand rubles.
Production costs in the short term, their dynamics.
The production costs that a firm incurs in producing products depend on the possibility of changing the amount of all employed resources. Some types of costs can be changed quite quickly (labor, fuel, etc.), others require some time for this.
Based on this, short-term and long-term periods are distinguished.
Short term – This is the period of time during which a firm can change production volume only due to variable costs, while production capacity remains unchanged. For example, hire additional workers, purchase more raw materials, use equipment more intensively, etc. It follows that in the short run costs can be either constant or variable.
Fixed costs (F.C.) - These are costs whose value does not depend on the volume of production.
Fixed costs are associated with the very existence of the firm and must be paid even if the firm does not produce anything. These include: rental payments, deductions for depreciation of buildings and equipment, insurance premiums, interest on loans, and labor costs for management personnel.
Variable costs (V.C.) – these are costs, the value of which changes depending on changes in production volume.
With zero output they are absent. These include: costs of raw materials, fuel, energy, most labor resources, transport services, etc. The firm can control these costs by changing production volume.
Total production costs (TC) – This is the sum of fixed and variable costs for the entire volume of output.
TC = total fixed costs (TFC) + total variable costs (TVC).
There are also average and marginal costs.
Average costs – This is the cost per unit of production. Average short-term costs are divided into average fixed, average variable and average total.
Average fixed costs (A.F.C.) are calculated by dividing total fixed costs by the number of products produced.
Average variable costs (AVC) are calculated by dividing total variable costs by the number of products produced.
Average Total Cost (ATC) are calculated using the formula
ATS = TS / Q or ATS = AFC + AVC
To understand the behavior of a firm, the category of marginal costs is very important.
Marginal cost (MC)– These are additional costs associated with producing one more unit of output. They can be calculated using the formula:
MS =∆ TC / ∆ Qwhere ∆Q= 1
In other words, marginal cost is the partial derivative of the total cost function.
Marginal costs make it possible for a firm to determine whether it is advisable to increase production of goods. To do this, compare marginal costs with marginal revenue. If marginal costs are less than the marginal revenue received from sales of this unit of product, then production can be expanded.
As production volumes change, costs change. Graphical representation of cost curves reveals some important patterns.
Fixed costs, given their independence from production volumes, do not change.
Variable costs are zero when no output is produced; they increase as output increases. Moreover, at first the growth rate of variable costs is high, then it slows down, but upon reaching a certain level of production, it increases again. This nature of the dynamics of variable costs is explained by the laws of increasing and diminishing returns.
Gross costs are equal to fixed costs when output is zero, and as production increases, the gross cost curve follows the shape of the variable cost curve.
Average fixed costs will continuously decrease as production volumes increase. This is because fixed costs are spread over more units of production.
The average variable cost curve is U-shaped.
The average total cost curve also has this shape, which is explained by the relationship between the dynamics of AVC and AFC.
The dynamics of marginal costs are also determined by the law of increasing and diminishing returns.
The MC curve intersects the AVC and AC curves at the points of the minimum value of each of them. This dependence of the limit and average values has a mathematical basis.
At the center of the classification of costs is the relationship between production volume and costs, the price of a given type of goods. Costs are divided into independent and dependent on the volume of products produced.
Fixed costs do not depend on the volume of production; they exist even at zero production volume. These are the previous obligations of the enterprise (interest on loans, etc.), taxes, depreciation, security payments, rent, equipment maintenance costs with zero production volume, salaries of management personnel, etc. The concept of fixed costs can be illustrated in Fig. 1.
Rice. 1. Fixed costs Chuev I.N., Chechevitsyna L.N. Enterprise economy. - M.: ITK Dashkov and K - 2006. - 225 p.
Let us plot the quantity of output (Q) on the x-axis, and the costs (C) on the y-axis. Then the fixed cost line will be a constant parallel to the x-axis. It is designated FC. Since with an increase in production volume, fixed costs per unit of output decrease, the average fixed cost (AFC) curve has a negative slope (Fig. 2). Average fixed costs are calculated using the formula: AFC = FС/Q.
They depend on the quantity of products produced and consist of the costs of raw materials, materials, wages to workers, etc.
As optimal output volumes are achieved (at point Q1), the growth rate of variable costs decreases. However, further expansion of production leads to accelerated growth of variable costs (Fig. 3).
Rice. 3.
The sum of fixed and variable costs forms gross costs- the amount of cash costs for production certain type products.
The difference between fixed and variable costs is essential for every businessman. Variable costs are costs that an entrepreneur can control, the value of which can be changed over a short period of time by changing the volume of production. On the other hand, fixed costs are obviously under the control of the company's administration. Such costs are mandatory and must be paid regardless of the volume of production 11 See: McConnell K. R. Economics: principles, problems, policies / McConnell K. R., Brew L. V. In 2 volumes / Translated from English . 11th ed. - T. 2. - M.: Republic, - 1992, p. 51..
To measure the cost of producing a unit of output, the categories of average, average fixed and average variable costs are used. Average costs equal to the quotient of total costs divided by the quantity of products produced. determined by dividing fixed costs by the number of products produced.
Rice. 2.
Determined by dividing variable costs by production volume:
АВС = VC/Q
When the optimal production size is achieved, average variable costs become minimal (Fig. 4).
Rice. 4.
Average variable costs play an important role in the analysis. economic condition firm: its equilibrium position and development prospects - expansion, reduction of production or exit from the industry.
General costs - the totality of a firm's fixed and variable costs ( TC = FC + VC).
Graphically, total costs are depicted as a result of the summation of fixed and variable cost curves (Fig. 5).
Average total costs are the quotient of total costs (TC) divided by production volume (Q). (Sometimes the average total costs of ATS in economic literature are denoted as AC):
AC (ATC) = TC/Q.
Average total costs can also be obtained by adding average fixed and average variable costs:
Rice. 5.
Graphically, average costs are depicted by summing the curves of average fixed and average variable costs and have a Y-shape (Fig. 6).
Rice. 6.
The role of average costs in a company's activities is determined by the fact that their comparison with the price allows one to determine the amount of profit, which is calculated as the difference between total revenue and total costs. This difference serves as a criterion for choosing the right strategy and tactics for the company.
The concepts of total and average costs are not enough to analyze the behavior of a company. Therefore, economists use another type of cost - marginal.
Marginal cost - This is the increment in the total cost of producing an additional unit of output.
The category of marginal costs is of strategic importance because it allows you to show the costs that a company will have to incur if it produces one more unit of output or save if it reduces production by this unit. In other words, marginal cost is the amount that a firm can control directly.
Marginal costs are obtained as the difference between production costs n + 1 units and production costs P units of product.
Since when output changes, fixed costs FV do not change, the change in marginal costs is determined only by the change in variable costs as a result of the release of an additional unit of output.
Graphically, marginal costs are depicted as follows (Fig. 7).
Rice. 7. Marginal and average costs Chuev I.N., Chechevitsyna L.N. Enterprise economy. - M.: ITK Dashkov and K - 2006. - 228 p.
Let us comment on the basic relationships between average and marginal costs.
The size of marginal and average costs are extremely important, since they primarily determine the firm's choice of production volume.
MS do not depend on FC , since FC do not depend on the volume of production, and MS are incremental costs.
As long as MC is less than AC, the average cost curve has a negative slope. This means that producing an additional unit of output reduces average cost.
When MC is equal to AC, this means that average costs have stopped decreasing, but have not yet begun to increase. This is the point of minimum average costs (AC = min).
5. When MC becomes larger than AC, the average cost curve goes up, indicating an increase in average costs as a result of producing an additional unit of output.
6. The MC curve intersects the AVC curve and the AC curve at the points of their minimum values (Fig. 7).
Under average refers to the plant’s costs for the production and sale of a unit of goods. Highlight:
* average fixed costs A.F.C., which are calculated by dividing the firm's fixed costs by production volume;
* average variable costs AVC, calculated by dividing variable costs by production volume;
* average gross costs or full cost units of an ATC product, which are determined as the sum of average variable and average fixed costs or as the quotient of dividing gross costs by output volume (their graphical expression is in Appendix 3).
* according to the methods of accounting and grouping costs, they are divided into simple(raw materials, materials, wages, wear and tear, energy, etc.) and complex, those. collected into groups either by functional role in the production process or by location of costs (shop expenses, factory overhead, etc.);
* the terms of use in production differ from daily, or current, costs and one-time, one-time costs incurred less than once a month and economic cost analysis uses marginal costs.
Average total cost (ATC) is the total cost per unit of output and is commonly used for comparison with price. They are defined as the quotient of total costs divided by the number of units produced:
TC = ATC / Q (2)
(AVC) is a measure of the cost of a variable factor per unit of output. They are defined as the quotient of gross variable costs divided by the number of units of production and are calculated using the formula:
AVC = VC / Q. (3)
Average fixed cost (AFC) is a measure of fixed costs per unit of output. They are calculated using the formula:
AFC=FC/Q. (4)
Graphic dependences of quantities various types average costs based on production volume are presented in Fig. 2.
Rice. 2
From the data analysis in Fig. 2 we can draw conclusions:
1) the AFC value, which is the ratio of the constant FC to the variable Q (4), is a hyperbola on the graph, i.e. with an increase in production volume, the share of average fixed costs per unit of output decreases;
2) the AVC value is the ratio of two variables: VC and Q (3). However, variable costs (VC) are almost directly proportional to product output (since the more products planned to be produced, the higher the costs will be). Therefore, the dependence of AVC on Q (volume of products produced) looks like an almost straight line parallel to the x-axis;
3) ATC, which is the sum of AFC + AVC, looks like a hyperbolic curve on the graph, located almost parallel to the AFC line. Thus, as in the case of AFC, the share of average total costs (ATC) per unit of output decreases with increasing production volume.
Average total costs first decrease and then begin to increase. Moreover, the ATC and AVC curves are getting closer. This is because average fixed costs over the short run decrease as output increases. Consequently, the difference in the height of the ATC and AVC curves at a certain volume of production depends on the value of AFC.
In the specific practice of using cost calculation to analyze the activities of enterprises in Russia and in Western countries there are both similarities and differences. The category is widely used in Russia cost price, representing the total costs of production and sales of products. Theoretically, the cost should include standard production costs, but in practice it includes excess consumption of raw materials, materials, etc. The cost is determined on the basis of the addition of economic elements (costs of the same economic purpose) or by summing up the costing items that characterize the direct directions of certain expenses.
Both in the CIS and in Western countries, to calculate costs, a classification of direct and indirect costs (expenses) is used. Direct costs- These are the costs directly associated with the creation of a unit of goods. Indirect costs necessary for the overall implementation of the production process of this type of product at the enterprise. The general approach does not exclude differences in the specific classification of some articles.
Due to the volume of output, costs in the short term are divided into fixed and variable.
Constants do not depend on the volume of output (FC). These include: depreciation costs, wages employees (as opposed to workers), advertising, rent, electricity, etc.
The variables depend on the volume of output (VC). For example, costs for materials, wages of main production workers, and others.
Fixed costs (costs) exist even with zero output (therefore they are never equal to zero). For example, regardless of whether the product is produced or not. You still need to pay rent for the premises. On the graph of the dependence of the value of costs (C) on the volume of production (Q), fixed costs (FC) look like a horizontal straight line, since they are not related to the manufactured products (Fig. 1).
Since variable costs (VC) depend on output, the more products are planned to be produced, the more costs need to be incurred for this. If nothing is produced, then there are no costs. Thus, the value of variable costs is in direct positive dependence on the volume of output and on the graph (see Fig. 1) represents a curve emerging from the origin.
The sum of fixed and variable costs is equal to total (gross) costs:
TC=FC+VC.(1)
Based on the above formula, on the graph the total cost (TC) curve is plotted parallel to the variable cost curve, but it does not come from zero, but from a point on the y-axis. the corresponding amount of fixed costs. We can also conclude that as production volume increases, total costs also increase proportionally (Fig. 1).
All types of costs considered (FC, VC and TC) relate to the entire output.
Rice. 1 Dependence of total costs (TC) on variable (VC) and fixed (FC).