Let's talk about the enterprise's fixed costs: what economic meaning does this indicator have, how to use and analyze it.

Fixed costs. Definition

Fixed costs(EnglishFixedcostF.C.TFC ortotalfixedcost) is a class of enterprise costs that are not related (do not depend) on the volume of production and sales. At each moment of time they are constant, regardless of the nature of the activity. Fixed costs combined with variables, which are the opposite of constant, are total costs enterprises.

Formula for calculating fixed costs/expenses

The table below shows possible fixed costs. In order to better understand fixed costs, let's compare them with each other.

Fixed costs= Salary costs + Premises rental + Depreciation + Property taxes + Advertising;

Variable costs = Costs of raw materials + Materials + Electricity + Fuel + Bonus part of salary;

Total costs= Fixed costs + Variable costs.

It should be noted that fixed costs are not always constant, because an enterprise, when developing its capacities, can increase production space, the number of personnel, etc. As a result, fixed costs will also change, which is why management accounting theorists call them ( conditionally fixed costs). Similarly for variable costs – conditionally variable costs.

Calculation example fixed costs at the enterprise inExcel

Let us clearly show the differences between fixed and variable costs. To do this, in Excel, fill in the columns with “production volume”, “fixed costs”, “variable costs” and “total costs”.

Below is a graph comparing these costs with each other. As we see, with an increase in production volume, the constants do not change over time, but the variables grow.

Fixed costs do not change only in the short term. In the long term, any costs become variable, often due to the impact of external economic factors.

Two methods for calculating costs in an enterprise

When producing products, all costs can be divided into two groups using two methods:

• fixed and variable costs;
• indirect and direct costs.

It should be remembered that the costs of the enterprise are the same, only they can be analyzed using different methods. In practice, fixed costs strongly overlap with such concepts as indirect costs or overhead costs. As a rule, the first method of cost analysis is used in management accounting, and the second in accounting.

Fixed costs and the break-even point of the enterprise

Variable costs are part of the break-even point model. As we determined earlier, fixed costs do not depend on the volume of production/sales, and with an increase in output, the enterprise will reach a state where the profit from products sold will cover variable and fixed costs. This state is called the break-even point or the critical point when the enterprise reaches self-sufficiency. This point is calculated in order to predict and analyze the following indicators:

• at what critical volume of production and sales will the enterprise be competitive and profitable;
• what volume of sales must be made in order to create a zone of financial security for the enterprise;

Marginal profit (income) at the break-even point coincides with the enterprise's fixed costs. Domestic economists often use the term gross income instead of marginal profit. The more the marginal profit covers fixed costs, the higher the profitability of the enterprise. You can study the break-even point in more detail in the article ““.

Fixed costs in the balance sheet of the enterprise

Since the concepts of fixed and variable costs of an enterprise relate to management accounting, there are no lines in the balance sheet with such names. In accounting (and tax accounting) the concepts of indirect and direct costs are used.

In general, fixed costs include balance sheet lines:

• Cost of goods sold – 2120;
• Selling expenses – 2210;
• Managerial (general economic) – 2220.

The figure below shows the balance sheet of Surgutneftekhim OJSC; as we see, fixed costs change every year. The fixed cost model is a purely economic model and can be used in the short term when revenue and production volume change linearly and naturally.

Let's take another example - OJSC ALROSA and look at the dynamics of changes in semi-fixed costs. The figure below shows the pattern of cost changes from 2001 to 2010. You can see that costs have not been constant over 10 years. The most consistent cost throughout the period was selling expenses. Other expenses changed one way or another.

Resume

Fixed costs are costs that do not change depending on the volume of production of the enterprise. This type costs is used in management accounting to calculate total costs and determine the break-even level of an enterprise. Since the company operates in a constantly changing external environment, then fixed costs also change in the long run and therefore in practice they are more often called conditionally fixed costs.

Production costs are the costs of purchasing economic resources consumed in the process of producing certain goods.

Any production of goods and services, as is known, is associated with the use of labor, capital and natural resources, which are factors of production whose value is determined by production costs.

Due to limited resources, the problem arises of how best to use them among all rejected alternatives.

Opportunity costs are the costs of producing goods, determined by the cost of the best lost opportunity to use production resources, ensuring maximum profit. The opportunity costs of a business are called economic costs. These costs must be distinguished from accounting costs.

Accounting costs differ from economic costs in that they do not include the cost of factors of production that are owned by the owners of firms. Accounting costs are less than economic costs by the amount of implicit earnings of the entrepreneur, his wife, implicit land rent and implicit interest on equity owner of the company. In other words, accounting costs are equal to economic costs minus all implicit costs.

The options for classifying production costs are varied. Let's start by distinguishing between explicit and implicit costs.

Explicit costs are opportunity costs that take the form cash payments owners of production resources and semi-finished products. They are determined by the amount of company expenses to pay for purchased resources (raw materials, materials, fuel, labor, etc.).

Implicit (imputed) costs are the opportunity costs of using resources that belong to the firm and take the form of lost income from the use of resources that are the property of the firm. They are determined by the cost of resources owned by a given company.

The classification of production costs can be carried out taking into account the mobility of production factors. Fixed, variable and total costs are distinguished.

Fixed costs (FC) are costs whose value in the short run does not change depending on changes in production volume. These are sometimes called "overhead" or "sunk costs". Fixed costs include the cost of maintaining production buildings, purchasing equipment, rental payments, interest payments on debts, salaries of management personnel, etc. All these costs must be financed even when the company does not produce anything.

Variable costs (VC) are costs whose value varies depending on changes in production volume. If products are not produced, then they are equal to zero. Variable costs include the cost of purchasing raw materials, fuel, energy, transport services, wages for workers and employees, etc. In supermarkets, payment for the services of supervisors is included in variable costs, since managers can adapt the volume of these services to the number of customers.

Total costs (TC) - the total costs of the company, equal to the amount its fixed and variable costs are determined by the formula:

Total costs increase as production volume increases.

Costs per unit of goods produced take the form of average fixed costs, average variable costs and average total costs.

Average fixed cost (AFC) is the total fixed cost per unit of output. They are determined by dividing fixed costs (FC) by the corresponding quantity (volume) of products produced:

Since total fixed costs do not change, when divided by increasing production volume, average fixed costs will fall as the quantity of output increases, because a fixed amount of costs is distributed over more and more units of output. Conversely, as production volume decreases, average fixed costs will increase.

Average variable cost (AVC) is the total variable cost per unit of output. They are determined by dividing variable costs by the corresponding quantity of output:

Average variable costs first fall, reaching their minimum, then begin to rise.

Average (total) costs (ATC) are the total production costs per unit of output. They are defined in two ways:

a) by dividing the sum of total costs by the number of products produced:

b) by summing average fixed costs and average variable costs:

ATC = AFC + AVC.

At the beginning, average (total) costs are high because the volume of output is small and fixed costs are high. As production volume increases, average (total) costs decrease and reach a minimum, and then begin to rise.

Marginal cost (MC) is the cost associated with producing an additional unit of output.

Marginal costs are equal to the change in total costs divided by the change in volume produced, that is, they reflect the change in costs depending on the quantity of output. Since fixed costs do not change, fixed marginal costs are always zero, i.e. MFC = 0. Therefore, marginal costs are always marginal variable costs, i.e. MVC = MC. It follows from this that increasing returns to variable factors reduce marginal costs, while decreasing returns, on the contrary, increase them.

Marginal costs show the amount of costs that a firm will incur when increasing production by the last unit of output, or the amount of money that it will save if production decreases by a given unit. In the case when additional costs Since each additional unit of output costs less to produce than the average cost of the units already produced, producing that next unit will lower the average total cost. If the cost of the next additional unit is higher than average cost, its production will increase average total cost. The above applies to a short period.

In practice Russian enterprises and in statistics the concept of “cost” is used, which is understood as the monetary expression of the current costs of production and sales of products. Costs included in the cost include costs for materials, overheads, wages, depreciation, etc. The following types of cost are distinguished: basic - cost of the previous period; individual - the amount of costs for the manufacture of a specific type of product; transportation - costs of transporting goods (products); sold products, current - assessment of sold products at restored cost; technological - the amount of costs for organization technological process manufacturing products and providing services; actual - based on actual costs for all cost items for a given period.

G.S. Bechkanov, G.P. Bechkanova

All types of company costs in the short term are divided into fixed and variable.

Fixed costs(FC - fixed cost) - such costs, the value of which remains constant when the volume of output changes. Fixed costs remain constant at any level of production. The company must bear them even if it does not produce products.

Variable costs(VC - variable cost) - these are costs, the value of which changes when the volume of output changes. Variable costs increase as production volume increases.

Gross costs(TC - total cost) is the sum of fixed and variable costs. At zero level of output, gross costs are constant. As production volume increases, they increase in accordance with the increase in variable costs.

Examples should be given various types costs and explain their changes due to the law of diminishing returns.

The average costs of the company depend on the value of total constants, total variables and gross costs. Average costs are determined per unit of output. They are usually used for comparison with unit price.

In accordance with the structure of total costs, a company distinguishes between average fixed costs (AFC - average fixed cost), average variable costs (AVC - average variable cost), and average total costs (ATC - average total cost). They are defined as follows:

ATC = TC: Q = AFC + AVC

One important indicator is marginal cost. Marginal cost(MC - marginal cost) is the additional costs associated with the production of each additional unit of output. In other words, they characterize the change in gross costs caused by the release of each additional unit of output. In other words, they characterize the change in gross costs caused by the release of each additional unit of output. Marginal costs are defined as follows:

If ΔQ = 1, then MC = ΔTC = ΔVC.

The dynamics of the firm's total, average and marginal costs using hypothetical data are shown in Table.

Dynamics of total, marginal and average costs of a company in the short term

Based on table Let's build graphs of fixed, variable and gross, as well as average and marginal costs.

The fixed cost graph FC is a horizontal line. The graphs of variable VC and gross TC costs have a positive slope. In this case, the steepness of the VC and TC curves first decreases and then, as a result of the law of diminishing returns, increases.

The AFC average fixed cost schedule has a negative slope. The curves for average variable costs AVC, average gross costs ATC and marginal costs MC have an arcuate shape, that is, they first decrease, reach a minimum, and then take on an upward appearance.

Attracts attention relationship between graphs of average variablesAVCand marginal MC costs, and also between the curves of average gross ATC and marginal MC costs. As can be seen in the figure, the MC curve intersects the AVC and ATC curves at their minimum points. This is because as long as the marginal, or incremental, cost associated with producing each additional unit of output is less than the average variable or average gross cost that existed before the production of that unit, average costs decrease. However, when the marginal cost of a particular unit of output exceeds the average cost before it was produced, average variable costs and average gross costs begin to increase. Consequently, equality of marginal costs with average variable and average gross costs (the point of intersection of the MC schedule with the AVC and ATC curves) is achieved at the minimum value of the latter.

Between marginal productivity and marginal cost there is a reverse addiction. As long as the marginal productivity of a variable resource increases and the law of diminishing returns does not apply, marginal cost decreases. When marginal productivity is at its maximum, marginal cost is at its minimum. Then, as the law of diminishing returns takes effect and marginal productivity declines, marginal cost increases. Thus, the marginal cost curve MC is mirror image MP marginal productivity curve. A similar relationship also exists between the graphs of average productivity and average variable costs.

Fixed costs (TFC), variable costs (TVC) and their schedules. Determining total costs

In the short run, some of the resources remain unchanged, and some change to increase or decrease total output.

In accordance with this, short-term economic costs are divided into fixed and variable costs. In the long run, this division becomes meaningless, since all costs can change (that is, they are variable).

Fixed costs (FC)- these are costs that do not depend in the short term on how much the firm produces. They represent the costs of its constant factors of production.

Fixed costs include:

• - payment of interest on bank loans;
• - depreciation charges;
• - payment of interest on bonds;
• - salary of management personnel;
• - rent;
• - insurance payments;

Variable costs(VC) These are costs that depend on the firm's output. They represent the costs of the firm's variable factors of production.

Variable costs include:

• - wages;
• - transportation costs;
• - electricity costs;
• - costs of raw materials and supplies.

From the graph we see that wavy line, representing variable costs, rises with increasing production volume.

This means that as production increases, variable costs increase:

initially they grow in proportion to the change in production volume (until point A is reached)

then savings in variable costs are achieved in mass production, and their growth rate decreases (until point B is reached)

the third period, reflecting changes in variable costs (movement to the right from point B), is characterized by an increase in variable costs due to a violation of the optimal size of the enterprise. This is possible by increasing transport costs due to the increased volumes of imported raw materials, volumes finished products which needs to be sent to the warehouse.

Total (gross) costs (TC)- these are all the costs for at the moment the time required to produce a particular product. TC = FC + VC

Formation of the average curve long-term costs, her schedule

Economies of scale are a long-term phenomenon when all resources are variable. This phenomenon should not be confused with the well-known law of diminishing returns. The latter is a phenomenon of an exclusively short-term period, when constant and variable resources interact.

At constant prices for resources, the effect of scale determines the dynamics of costs in the long term. After all, it is he who shows whether increasing production capacity leads to decreasing or increasing returns.

It is convenient to analyze the efficiency of resource use in a given period using the LATC long-term average cost function. What is this function? Let's assume that the Moscow government is deciding on the expansion of the city-owned AZLK plant. With available production capacity cost minimization is achieved with a production volume of 100 thousand cars per year. This state of affairs is reflected by the short-term average cost curve ATC1, corresponding to a given scale of production (Fig. 6.15). Let the introduction of new models, which are planned to be released jointly with Renault, increase the demand for cars. The local design institute proposed two plant expansion projects, corresponding to two possible production scales. Curves ATC2 and ATC3 are the short-run average cost curves for this large scale of production. When deciding on an option to expand production, plant management, in addition to taking into account financial opportunities investment, will take into account two main factors: the magnitude of demand and the value of the costs with which the required volume of production can be produced. It is necessary to select a production scale that will ensure that demand is met at minimum cost per unit of production.

ILong-run average cost curve for a specific project

Here, the points of intersection of adjacent short-term average cost curves (points A and B in Fig. 6.15) are of fundamental importance. By comparing the production volumes corresponding to these points and the magnitude of demand, the need to increase the scale of production is determined. In our example, if the demand does not exceed 120 thousand cars per year, it is advisable to carry out production at the scale described by the ATC1 curve, i.e. at existing capacities. In this case, the achievable unit costs are minimal. If demand increases to 280 thousand cars per year, then the most suitable plant would be with the production scale described by the ATC2 curve. This means that it is advisable to carry out the first investment project. If demand exceeds 280 thousand cars per year, it will be necessary to implement a second investment project, that is, expand the scale of production to the size described by the ATC3 curve.

In the long term, there will be enough time to implement any possible investment project. Therefore, in our example, the long-term average cost curve will consist of successive sections of short-term average cost curves up to the points of their intersection with the next such curve (thick wavy line in Fig. 6.15).

Thus, each point on the LATC long-run cost curve determines the minimum achievable unit cost for a given production volume, taking into account the possibility of changes in production scale.

In the limiting case, when a plant of the appropriate scale is built for any amount of demand, i.e. there are infinitely many short-term average cost curves, the long-term average cost curve changes from a wave-like one to a smooth line that goes around all the short-term average cost curves. Each point on the LATC curve is a point of tangency with a specific ATCn curve (Figure 6.16).

Every organization strives to achieve maximum profit. Any production incurs costs for the purchase of factors of production. At the same time, the organization strives to achieve such a level that a given volume of production is provided at the lowest possible cost. The firm cannot influence the prices of resources. But, knowing the dependence of production volumes on the number of variable costs, costs can be calculated. Cost formulas will be presented below.

Types of costs

From an organizational point of view, expenses are divided into the following groups:

• individual (expenses of a particular enterprise) and social (costs of manufacturing a specific type of product incurred by the entire economy);
• alternative;
• production;
• general.

The second group is further divided into several elements.

Total expenses

Before studying how costs and cost formulas are calculated, let's look at the basic terms.

Total costs (TC) are the total costs of producing a certain volume of products. In the short term, a number of factors (for example, capital) do not change, and some costs do not depend on output volumes. This is called total fixed costs (TFC). The amount of costs that changes with output is called total variable costs (TVC). How to calculate total costs? Formula:

Fixed costs, the calculation formula for which will be presented below, include: interest on loans, depreciation, insurance premiums, rent, salary. Even if the organization does not work, it must pay rent and loan debt. Variable expenses include salaries, costs of purchasing materials, paying for electricity, etc.

With an increase in output volumes, variable production costs, the calculation formulas for which were presented earlier:

• grow proportionally;
• slow down growth when reaching the maximum profitable production volume;
• resume growth due to violation of the optimal size of the enterprise.

Average expenses

Wanting to maximize profits, the organization seeks to reduce costs per unit of product. This ratio shows a parameter such as (ATS) average cost. Formula:

ATC = TC\Q.

ATC = AFC + AVC.

Marginal costs

The change in total costs when production volume increases or decreases by one unit shows marginal costs. Formula:

From an economic point of view, marginal costs are very important in determining the behavior of an organization in market conditions.

Relationship

Marginal cost must be less than total average cost (per unit). Failure to comply with this ratio indicates a violation of the optimal size of the enterprise. Average costs will change in the same way as marginal costs. It is impossible to constantly increase production volume. This is the law of diminishing returns. At a certain level, variable costs, the calculation formula for which was presented earlier, will reach their maximum. After this critical level, an increase in production volumes even by one will lead to an increase in all types of costs.

Example

Having information about the volume of production and the level of fixed costs, you can calculate everything existing species costs.

Without engaging in production, the organization bears fixed costs at the level of 60 thousand rubles.

Variable costs are calculated using the formula: VC = TC - FC.

If the organization is not engaged in production, the amount of variable costs will be zero. With an increase in production by 1 piece, VC will be: 130 - 60 = 70 rubles, etc.

Marginal costs are calculated using the formula:

MC = ΔTC / 1 = ΔTC = TC(n) - TC(n-1).

The denominator of the fraction is 1, since each time the volume of production increases by 1 piece. All other costs are calculated using standard formulas.

Opportunity Cost

Accounting expenses are the cost of the resources used in their purchase prices. They are also called explicit. The amount of these costs can always be calculated and justified with a specific document. These include:

• salary;
• equipment rental costs;
• transportation costs;
• payment for materials, bank services, etc.

Economic costs are the cost of other assets that can be obtained from alternative uses of resources. Economic costs = Explicit + Implicit costs. These two types of expenses most often do not coincide.

Implicit costs include payments that a firm could receive if it used its resources more profitably. If they were bought in a competitive market, their price would be the best among the alternatives. But pricing is influenced by the state and market imperfections. Therefore, the market price may not reflect the true cost of the resource and may be higher or lower than the opportunity cost. Let us analyze in more detail the economic costs and cost formulas.

Examples

An entrepreneur, working for himself, receives a certain profit from his activities. If the sum of all expenses incurred is higher than the income received, then the entrepreneur ultimately suffers a net loss. It, together with net profit, is recorded in documents and refers to explicit costs. If an entrepreneur worked from home and received an income that exceeded his net profit, then the difference between these values ​​would constitute implicit costs. For example, an entrepreneur receives a net profit of 15 thousand rubles, and if he were employed, he would have 20,000. in this case there are implicit costs. Cost formulas:

NI = Salary - Net profit = 20 - 15 = 5 thousand rubles.

Another example: an organization uses in its activities premises that belong to it by right of ownership. Explicit expenses in this case include the amount of utility costs (for example, 2 thousand rubles). If the organization rented out this premises, it would receive an income of 2.5 thousand rubles. It is clear that in this case the company would also pay utility bills monthly. But she would also receive net income. There are implicit costs here. Cost formulas:

NI = Rent - Utilities = 2.5 - 2 = 0.5 thousand rubles.

Returnable and sunk costs

The cost for an organization to enter and exit a market is called sunk costs. No one will return the costs of registering an enterprise, obtaining a license, or paying for an advertising campaign, even if the company ceases operations. In a narrower sense, sunk costs include costs for resources that cannot be used in alternative ways, such as the purchase of specialized equipment. This category expenses do not apply economic costs and does not affect the current state of the company.

Costs and price

If the organization's average costs are equal to the market price, then the firm makes zero profit. If favorable conditions increase the price, the organization makes a profit. If the price corresponds to the minimum average cost, then the question arises about the feasibility of production. If the price does not cover even the minimum variable costs, then the losses from the liquidation of the company will be less than from its functioning.

International distribution of labor (IDL)

The world economy is based on MRI - the specialization of countries in the production individual species goods. This is the basis of any type of cooperation between all states of the world. The essence of MRI is revealed in its division and unification.

One production process cannot be divided into several separate ones. At the same time, such a division will make it possible to unite separate industries and territorial complexes and establish interconnections between countries. This is the essence of MRI. It is based on the economically advantageous specialization of individual countries in the production certain types goods and their exchange in quantitative and qualitative relationships.

Development factors

The following factors encourage countries to participate in MRI:

• Volume of the domestic market. Large countries have greater ability to find the necessary factors of production and less need to engage in international specialization. At the same time, market relations are developing, import purchases are compensated by export specialization.
• The lower the state's potential, the greater the need to participate in MRT.
• The country's high supply of monoresources (for example, oil) and low level of mineral resources encourage active participation in MRT.
• The greater the share of basic industries in the structure of the economy, the less the need for MRI.

Each participant finds economic benefit in the process itself.