Variable costs include. Analysis of decisions made. Calculation of variable costs

22.09.2019

Any company operates to generate income, and its work is impossible without money spent. Exist different kinds such expenses. There are types of activities that require constant financial investments. But some of the costs are not regular, and their impact on the progress of the product and its sales must also be taken into account.

So, the main point of any company is to release a product and generate income from it. To start this activity, you first need to purchase raw materials, production tools, and hire labor. Certain funds are spent on this; in economics they are called costs.

People invest money in productive activities for a variety of purposes. In accordance with this, a classification of expenses was adopted. Cost categories (depending on properties):

Explicit. Such costs are incurred directly for the payment of wages to employees, commissions to other organizations, payment for the activities of banks and transport.
Implicit. Costs for the needs of company managers that are not specified in contracts.
Permanent. Means that ensure continuous production processes.
Variables. Costs that can be easily adjusted while maintaining the same level of product output.
Non-refundable. Expenses of movable assets that are invested in the company's activities free of charge. Characteristic of the initial period of production or re-profiling of an organization. These funds can no longer be spent on other organizations.
Average. Costs obtained during calculations that characterize investments in each unit of product. This indicator contributes to the pricing of the product.
Limit. This is the largest cost that cannot be increased due to the low efficiency of capital investments in the company.
Appeals. Costs of delivering goods from manufacturer to consumer.

Application of fixed and variable costs

Let's look at the differences fixed costs from variables, their economic characteristics.

The first type of costs (fixed) designed for investment in the manufacture of a product in a separate production cycle. In each organization, their size is individual, so the enterprise considers them separately, taking into account the analysis of the release process. Please note that such costs will not differ from the initial production stage to the sale of products to the consumer.

Second type of costs (variables) changes in each production cycle, with virtually no repetitions of this indicator.

The two types of costs together make up the total costs, which are calculated at the end of the production process.

Simply put, fixed costs - those that remain unchanged over a certain period of time. What can be attributed to them?

Payment of utilities;
Costs of operating premises;
Payment of rent;
Salaries of staff;

It must be taken into account that the constant level of total costs used in a specific time period of production, during one cycle, applies only to total number units of goods produced. If such costs are calculated for each unit, their size will decrease in accordance with the increase in output. This fact applies to all types of production.

Variable costs are proportional to the changing quantity or volume of goods produced. These include:

Energy costs;
Material costs;
Negotiated wages.

This type of cost is closely related to the volume of product output, as a result of which it changes according to the production indicators of this product.

Examples of costs:

Each production cycle corresponds to a specific amount of costs that remain unchanged under any conditions. There are other costs that depend on production resources. As was previously established, costs over a short period of time can be variable or constant.

Such characteristics are not suitable for a long time, because the costs will vary in this case.

Examples of fixed costs

Fixed costs remain at the same level for any volume of product output, in a short time period. These are costs for the company's stable factors that are not proportional to the number of units of the product. Examples of such expenses are:

payment of interest on a bank loan;
depreciation expenses;
payment of interest on bonds;
salaries for managers at the enterprise;
insurance costs.

All costs independent of the production of a product, which are constant in a short period of the production cycle, can be called constant.

Variable Cost Examples

Variable costs, on the contrary, are essentially investments in the production of goods, and therefore depend on its volume. The amount of investment is directly proportional to the quantity of goods produced. Examples could include costs for:

for raw material reserves;
payment of bonuses to employees producing products;
delivery of materials and the product itself;
energetic resources;
equipment;
other expenses for the production of goods or provision of services.

Consider the variable cost graph, which is a curve. (Figure 1.)

Fig. 1 - graph of variable costs

The path of this line from the origin to point A depicts the increase in costs as the quantity of goods produced increases. Section AB: more rapid increase in costs in conditions of mass production. Variable costs may be affected by disproportionate costs for transport services or consumables, improper use of released goods with reduced demand for it.

Example of calculating production costs:

Let us consider the calculation of constants and variable costs on specific example. Let's say a shoe company produces 2,000 pairs of boots per year. During this time, the factory spends funds on the following needs:

rent – 25,000 rub.;
interest on a bank loan - 11,000 rubles;
payment for the production of one pair of shoes - 20 rubles;
raw materials for the production of a pair of boots - 12 rubles.

Our task: to calculate variable, fixed costs, as well as the funds spent on each pair of shoes.

Fixed costs in in this case You can only name rent and loan payments. Such expenses are unchangeable, depending on production volumes, so they are easy to calculate: 25,000 + 11,000 = 36,000 rubles.

The cost of producing one pair of shoes is variable costs: 20+12=32 rubles.

Consequently, annual variable costs are calculated as follows: 2000 * 32 = 64,000 rubles.

General costs– this is the sum of variables and constants: 36000+64000=100000 rubles.

Average total cost per pair of shoes: 100,000/20=50

Production cost planning

It is important for each company to correctly calculate, plan and analyze production costs.

In the process of cost analysis, options for the economical use of finances are considered, which are invested in production and must be distributed correctly. This leads to a reduction in production costs, and hence the final price of the manufactured product, as well as an increase in the company’s competitiveness and an increase in its income.

The task of each company is to save as much as possible on production and optimize this process so that the enterprise develops and becomes more successful. As a result of these measures, the profitability of the organization increases, which means there are more opportunities to invest in it.

To plan production costs, you need to take into account their sizes in previous cycles. In accordance with the volume of goods produced, a decision is made to reduce or increase production costs.

Balance Sheet and Costs

Among accounting documentation Every company has a “Profit and Loss Statement”. All information about expenses is recorded there.

A little more about this document. This report does not characterize the property status of the enterprise in general, but provides information about its activities for the selected time period. In accordance with OKUD, the profit and loss statement has form 2. In it, income and expense indicators are recorded progressively from the beginning to the end of the year. The report includes a table in which line 020 displays the organization's main expenses, line 029 shows the difference between profit and costs, and line 040 shows expenses included in account 26. The latter represent travel costs, payment for premises and labor protection, and employee benefits. Line 070 shows the company's interest on loan obligations.

The initial calculation results (when reporting) are divided into direct and indirect costs. If we consider these indicators separately, then direct costs can be considered fixed costs, and indirect costs - variable.

The balance sheet does not record costs directly; it only shows the assets and financial liabilities of the business.

Accounting costs (otherwise known as explicit costs)- This is payment in monetary terms for any transactions. They have a close relationship with the economic costs and income of the company. Let's subtract explicit costs from the company's profit, and if we get zero, then the organization has used its resources in the most correct way.

Example of cost calculation

Let's consider an example of calculating accounting and economic costs and profits. The owner of a recently opened laundry planned to receive an income of 120,000 rubles a year. To do this, he will have to cover the costs:

rental of premises - 30,000 rubles;
salary for administrators - 20,000 rubles;
purchase of equipment - 60,000 rubles;
other small expenses - 15,000 rubles;

Loan payments – 30%, deposit – 25%.

The head of the enterprise purchased the equipment at his own expense. Washing machines are subject to breakdown after some time. Taking this into account, you need to create a depreciation fund, into which 6,000 rubles will be transferred every year. All of the above are obvious expenses. Economic costs – possible profit laundry owner, in case of purchasing a deposit. To pay the initial expenses, he will have to use a bank loan. Loan in the amount of 45,000 rubles. will cost him 13,500 rubles.

Thus, we calculate the explicit costs: 30+2*20+6+15+13.5=104.5 thousand rubles. Implicit (deposit interest): 60*0.25=15 thousand rubles.

Accounting income: 120-104.5=15.5 thousand rubles.

Economic income: 15.5-15=0.5 thousand rubles.

Accounting and economic costs differ from each other, but they are usually considered together.

The value of production costs

Production costs shape the law economic demand: with an increase in the price of a product, its level increases market supply, and with a decrease, supply also decreases, while other conditions remain the same. The essence of the law is that every manufacturer wants to offer maximum amount goods at the highest price, which is most profitable.

For the buyer, the cost of the product is a limiting factor. The high price of a product forces the consumer to buy less of it; and accordingly, cheaper products are purchased in large volumes. The manufacturer receives a profit for the released product, so he strives to produce it in order to acquire revenue from each unit of the product, in the form of its price.

What is the main role of production costs? Let's consider it using the example of processing industrial enterprise. Over a certain period of time, production costs increase. To compensate for them, you need to raise the price of the product. The increase in costs is due to the fact that it is impossible to quickly expand the production area. The equipment is overloaded, which reduces the efficiency of the enterprise. Thus, to produce a product at the highest cost, the firm must set a higher price for it. Price and supply level are directly related.

Variable costs are costs that depend on the volume of production.

In accordance with IFRS standards, there are two groups of variable costs: production variable direct costs and production variable indirect costs.

Production variable direct costs are expenses that can be attributed directly to the cost of specific products based on primary accounting data.

Production variable indirect costs are costs that are directly dependent or almost directly dependent on changes in the volume of activity, but due to the technological features of production they cannot or are not economically feasible to be directly attributed to the products being manufactured.

Examples of variable costs of the first group are:

Costs of raw materials and basic materials;

Energy costs, fuel;

Wages of workers producing products with accruals for it.

Examples of variable costs of the second group are the costs of raw materials in complex industries. For example, when processing raw materials - coal - gas, benzene, coal tar, and ammonia are produced. When milk is separated, skim milk and cream are obtained. It is possible to divide the costs of raw materials by type of product in these examples only indirectly.

Statement of the dependence of costs on production volume only indicates that variable costs increase simultaneously with its increase, and in this case the degree of “sensitivity” of costs to changes in the scale of production may be different.

In accordance with this definition, a distinction is made between proportional, progressive and degressive costs.

Variable costs change in direct proportion to the level (volume) of production activity. That is, doubling the production level will cause total variable costs to also double. Consequently, total variable costs have a linear relationship with production volume, and variable costs per unit of production are a constant value in a certain area of relevance. Examples of short-term variable manufacturing costs are piece labor, basic materials, and energy required for machine tools. These costs are assumed to fluctuate in direct proportion to the volume of production activity within a certain level of production or activity. For example, variable overhead costs include sales commissions, which vary depending on the volume of sales revenue; the cost of fuel, depending on the distance covered (in km).

Proportional costs vary in direct proportion to production volume. If the overall cost curve is linear, proportional costs correspond to marginal costs.

Variable costs increase or decrease in absolute amount depending on changes in production volume and are divided into proportional and disproportionate parts. Proportional costs include costs of raw materials, basic materials, semi-finished products, wages of main production workers with piecework wages, the predominant part of fuel and energy costs for technological purposes, costs of containers and packaging of products. They change in direct proportion to the increase or decrease in the quantity of manufactured (sold) products.

Disproportional costs, in turn, can be progressive, i.e. increasing faster than the volume of production, and degrading if the increase in their amount is less than the change in the quantity of production.

The absolute amount of progressive expenses during the selected period increases at a higher rate than the quantity of production. An increase in production volume is achieved at the expense of additional versus normal (i.e. proportional) costs. Progressive expenses include, for example, additional payments at progressive piece rates, for overtime work, work at night and on holidays, and payment for forced downtime. From the above list it is clear that in most cases such expenses are caused by a violation of the regularity and rhythm of production and are atypical for a normally operating enterprise.

Degrading costs increase in absolute value more slowly than production volume. These include, for example, the costs of routine repairs of production equipment, valuable tools and vehicles, the cost of lubricants, cleaning materials, cooling emulsions and other auxiliary materials necessary to care for the equipment and keep it in working order; costs of fuel, electricity, water, steam, compressed air and other types of energy to set production mechanisms in motion; expenses for intra-factory movement of goods; bonus payments for fulfilling the production plan. With an increase in production volume, these costs increase, but not in proportion to the number of products produced, but with some slowdown, a lag in pace, and, consequently, in the absolute amount of cost growth. This is explained by the fact that degressive costs are associated not only with the production of products, but also with the maintenance of production and, in terms of the degree of dependence on the volume of production, occupy an intermediate position between constant and proportional costs.

Since the amount of costs is influenced by various factors, the degree of degression in the relationship between costs and production volume can be difficult to determine in practice. There is an opinion that, for simplicity, highly degressive expenses should be considered constant, and weakly degressive ones - proportional. However, such an assumption is conditional and can lead to large inaccuracies in the calculations. It seems more correct to use, when planning and analyzing cost dynamics, so-called variators, or relative indicators that characterize the degree of dependence of costs on production volume or the use of production capacity. They are established for each cost item that is not proportionally dependent on the quantity of production.

Variable costs can also be qualified as conditionally variable costs that change with changes in production volume. An increase in production volumes causes an increase in direct costs: raw materials, wages, fuel and other resources. However, such a dependence is not always proportional, since an increase in production volumes can also be achieved by increasing labor productivity, better use of production assets, and reducing the material intensity of products.

2. Sheremet A.D., Sayfulin R.S. Methods of financial analysis [Text]: textbook / A.D. Sheremet, R.S. Saifulin - M.: INFRA-M, 2003 Uk.soch. - 575s.

Pricing

To carry out the above process, as well as manage it, cost sharing plays a fairly important role. The dynamics of their changes with fluctuations in production volumes allows us to distinguish two categories: variable and fixed costs.

Variable costs

This concept represents expense items, the volume of which directly depends on the number of products produced. From an economic point of view, this category can be considered as the entire totality of costs for the real activities of an enterprise. This allows you to most fully highlight the goals that contributed to the creation of the enterprise and determined the directions of its development. Consequently, the larger the production volume, the more significant part must be allocated to variable costs. This category traditionally includes expenses for the purchase of materials and raw materials, components and spare parts, electricity and fuel resources, as well as contributions to social insurance funds and wages employees.

These are expenses, the volume of which does not depend on the number of products produced. Nevertheless, we can talk about the invariability of this value only when considering certain scales of production activity. From an economic point of view this type costs is responsible for the most optimal conditions for the enterprise. Fixed costs are objectively existing even during those periods of time when the organization does not produce any products. A change in this category of costs is possible only if there are any changes in the production process itself. Such a condition may include the purchase of new equipment, the construction of new and additional buildings and structures, as well as price changes. Fixed costs traditionally include salaries of the administration and management staff, as well as contributions to social insurance funds, costs of operating and maintaining the proper condition of buildings, structures and structures, maintenance and repair of equipment, etc.

Mixed costs

This category is not one of the main ones, but it is quite common in both small and large enterprises. This, as the name suggests, includes both fixed and variable costs. The simplest and most obvious example of costs of this kind is paying bills for telephone conversations. In this case, elements of both the first and second categories may be present. Thus, the subscription fee belongs to the group of “fixed costs”, but bills for long-distance communication belong to the group of “variable costs”.

What is this for?

Dividing the costs of an enterprise into the two classes described above is important and necessary, since in market conditions there are frequent changes in the market situation, which can lead to an expansion or, conversely, a reduction in the volume of output. Fluctuations in the scale of production directly affect variable and fixed costs, which in turn affect the pricing process, and therefore profits.

As we remember, we need a business plan not only to understand the goals and ways to achieve them, but also to justify the profitability and possibility of implementing our investment project.

When making calculations for a project, you come across the concept of fixed and variable costs, or expenses.

What are they and what is their economic and practical meaning for us?

Variable expenses, by definition, are those expenses that are not constant. They change. And the change in their value is associated with the volume of products produced. The higher the volume, the higher the variable costs.

What cost items are included in them and how to calculate them?

All resources that are spent on production can be classified as variable costs:

materials;
components;
employees' wages;
electricity consumed by a running machine engine.

The cost of all the necessary resources that must be spent to produce a certain volume of output. This is all material costs, plus workers' wages and service personnel, plus the cost of electricity, gas, water spent during the production process, plus packaging and transportation costs. This also includes the costs of creating stocks of materials, raw materials and components.

Variable costs need to be known per unit of output. Then we can calculate at any time the total amount of variable costs for a certain period of time.
We simply divide the estimated cost of production by the volume of production in physical terms. We obtain variable costs per unit of production.

This calculation is made for each type of product and service.

How does unit costing differ from the variable cost of producing one product or service? The calculation also includes fixed costs.

Fixed costs are almost independent of production volumes.

These include:

administrative expenses (costs of maintaining and renting offices, postal services, travel expenses, corporate communications);
production maintenance costs (rent of production premises and equipment, machine maintenance, electricity, space heating);
marketing expenses (product promotion, advertising).

Fixed costs remain constant until a certain point when production volume becomes too large.

An important step for determining variable and fixed costs, as well as the entire financial plan, is the calculation of personnel costs, which can also be carried out at this stage.

Based on the data we received in terms of organizational structure, staffing table, operating mode, and also based on the production program data, we calculate personnel costs. We make this calculation for the entire period of the project.

It is necessary to determine the amount of remuneration for management personnel, production and other employees, as well as the total amount of expenses.

Don’t forget to take into account taxes and social contributions, which will also be included in the total amount.

All data is presented in tabular form for ease of calculation.

Knowing fixed and variable costs, as well as product prices, you can calculate the break-even point. This is the level of sales that ensures the enterprise’s self-sufficiency. At the break-even point, there is equality in the sum of all costs, fixed and variable, and the income from the sale of a certain volume of products.

Analysis of the break-even level will allow us to draw a conclusion about the sustainability of the project.

An enterprise should strive to reduce variable and fixed costs per unit of production, but this is not a direct indicator of production efficiency. It is necessary to take into account the specifics of the enterprise. High-tech industries may have high fixed costs, while low ones may occur in underdeveloped ones with old equipment. This can also be observed when analyzing variable costs.

The main goal of your company is to maximize economic profit. And this is not only cutting costs in any way, but also using various tools to reduce production and management costs through the use of more productive equipment and increased labor productivity.

Let's consider the variable costs of an enterprise, what they include, how they are calculated and determined in practice, consider methods for analyzing the variable costs of an enterprise, the effect of changing variable costs at different volumes of production and their economic meaning. In order to easily understand all this, an example of variable cost analysis based on the break-even point model is analyzed at the end.

Variable costs of the enterprise. Definition and their economic meaning

Variable costs of the enterprise (EnglishVariableCost,V.C.) are the costs of the enterprise/company, which vary depending on the volume of production/sales. All costs of an enterprise can be divided into two types: variable and fixed. Their main difference is that some change with increasing production volume, while others do not. If the company's production activities cease, then variable costs disappear and become equal to zero.

Variable costs include:

The cost of raw materials, materials, fuel, electricity and other resources involved in production activities.
Cost of manufactured products.
Wages of working personnel (part of the salary depends on the standards met).
Percentages on sales to sales managers and other bonuses. Interest paid to outsourcing companies.
Taxes that have a tax base based on the size of sales and sales: excise taxes, VAT, unified tax on premiums, tax according to the simplified tax system.

What is the purpose of calculating the variable costs of an enterprise?

Behind any economic indicator, coefficient and concept one should see their economic meaning and the purpose of their use. If we talk about the economic goals of any enterprise/company, then there are only two of them: either increasing income or reducing costs. If we summarize these two goals into one indicator, we get the profitability/profitability of the enterprise. The higher the profitability/profitability of an enterprise, the greater its financial reliability, the greater the opportunity to attract additional borrowed capital, expand its production and technical capacities, increase intellectual capital, increase its value in the market and investment attractiveness.

The classification of enterprise costs into fixed and variable is used for management accounting, and not for accounting. As a result, there is no such item as “variable costs” in the balance sheet.

Determining the size of variable costs in general structure of all enterprise costs allows you to analyze and consider various management strategies for increasing the profitability of the enterprise.

Amendments to the definition of variable costs

When we introduced the definition of variable costs/costs, we were based on a model of linear dependence of variable costs and production volume. In practice, variable costs often do not always depend on the size of sales and output, so they are called conditionally variable (for example, the introduction of automation of part production functions and as a result of a decrease in wages for the production rate of production personnel).

The situation is similar with fixed costs; in reality, they are also semi-fixed in nature and can change with production growth (increasing rent for production premises, changes in the number of personnel and a consequence of the volume of wages. You can read more about fixed costs in detail in my article: "".

Classification of enterprise variable costs

In order to better understand how to understand what variable costs are, consider the classification of variable costs according to various criteria:

Depending on the size of sales and production:

Proportional costs. Elasticity coefficient =1. Variable costs increase in direct proportion to the growth of production volume. For example, production volume increased by 30% and costs also increased by 30%.
Progressive costs (analogous to progressive-variable costs). Elasticity coefficient >1. Variable costs have a high sensitivity to change depending on the size of output. That is, variable costs increase relatively more with production volume. For example, production volume increased by 30% and costs by 50%.
Degressive costs (analogous to regressive-variable costs). Elasticity coefficient< 1. При увеличении роста производства переменные издержки предприятия уменьшаются. This effect received the name “economy of scale” or “effect of mass production”. For example, production volume increased by 30%, but variable costs increased only by 15%.

The table shows an example of changes in production volume and the size of variable costs for their various types.

According to statistical indicators, there are:

Total variable costs ( EnglishTotalVariableCost,TVC) – include the totality of all variable costs of the enterprise for the entire range of products.
Average variable costs (AVC, AverageVariableCost) – average variable costs per unit of product or group of goods.

According to the method of financial accounting and attribution to the cost of manufactured products:

Variable direct costs are costs that can be attributed to the cost of goods manufactured. Everything is simple here, these are the costs of materials, fuel, energy, wages, etc.
Variable indirect costs are costs that depend on the volume of production and it is difficult to assess their contribution to the cost of production. For example, during the industrial separation of milk into skim milk and cream. Determining the amount of costs in the cost price of skim milk and cream is problematic.

In relation to the production process:

Production variable costs - costs of raw materials, supplies, fuel, energy, wages of workers, etc.
Non-production variable costs are costs not directly related to production: commercial and administrative expenses, for example: transportation costs, commission to an intermediary/agent.

Formula for calculating variable costs/expenses

As a result, you can write a formula for calculating variable costs:

Variable costs = Costs of raw materials + Materials + Electricity + Fuel + Bonus part of salary + Interest on sales to agents;

Variable costs= Marginal (gross) profit – Fixed costs;

The totality of variable and fixed costs and fixed costs is total costs enterprises.

Total costs= Fixed costs + Variable costs.

The figure shows the graphical relationship between enterprise costs.

How to reduce variable costs?

One strategy for reducing variable costs is to use “economies of scale.” With an increase in production volume and the transition from serial to mass production, economies of scale appear.

Economies of scale graph shows that as production volume increases, a turning point is reached when the relationship between costs and production volume becomes nonlinear.

At the same time, the rate of change in variable costs is lower than the growth of production/sales. Let's consider the reasons for the appearance of the “production scale effect”:

Reducing management personnel costs.
Use of R&D in production. An increase in output and sales leads to the possibility of conducting expensive scientific research research work to improve production technology.
Narrow product specialization. Focusing the entire production complex on a number of tasks can improve their quality and reduce the amount of defects.
Production of products similar in the technological chain, additional capacity utilization.

Variable costs and break-even point. Example calculation in Excel

Let's consider the break-even point model and the role of variable costs. The figure below shows the relationship between changes in production volume and the size of variable, fixed and total costs. Variable costs are included in total costs and directly determine the break-even point. More

When the enterprise reaches a certain volume of production, an equilibrium point occurs at which the size of profits and losses coincides, net profit is equal to zero, and marginal profit is equal to fixed costs. Such a point is called break-even point, and it shows the minimum critical level of production at which the enterprise is profitable. In the figure and calculation table presented below, 8 units are achieved by producing and selling. products.

The enterprise's task is to create security zone and ensure a level of sales and production that would ensure the maximum distance from the break-even point. The further the enterprise is from the break-even point, the higher its level financial stability, competitiveness and profitability.

Let's look at an example of what happens to the break-even point when variable costs increase. The table below shows an example of changes in all indicators of income and costs of an enterprise.

As variable costs increase, the break-even point shifts. The figure below shows a graph for achieving the break-even point in a situation where the variable costs of producing one unit of steel are not 50 rubles, but 60 rubles. As we can see, the break-even point became equal to 16 units of sales/sales or 960 rubles. income.

This model, as a rule, operates with linear relationships between production volume and income/costs. In real practice, dependencies are often nonlinear. This arises due to the fact that production/sales volume is influenced by: technology, seasonality of demand, influence of competitors, macroeconomic indicators, taxes, subsidies, economies of scale, etc. To ensure the accuracy of the model, it should be used in the short term for products with stable demand (consumption).

Summary

In this article we looked at various aspects variable costs/costs of an enterprise, what forms them, what types of them exist, how changes in variable costs and changes in the break-even point are related. Variable costs are the most important indicator of an enterprise in management accounting, for creating planned tasks for departments and managers to find ways to reduce their weight in total costs. To reduce variable costs, production specialization can be increased; expand the range of products using the same production capacity; increase the share of scientific and production developments to improve efficiency and quality of output.