The production costs of a business can be divided into two categories: variable and fixed costs. Variable costs depend on changes in production volume, while constant ones remain fixed. Understanding the principle of classifying costs into fixed and variable is the first step to managing costs and improving production efficiency. Knowing how to calculate variable costs will help you reduce your unit costs, making your business more profitable.

Steps

Calculation of variable costs

Classify costs into fixed and variable. Fixed costs are those costs that remain unchanged when production volume changes. For example, this may include rent and salaries of management personnel. Whether you produce 1 unit or 10,000 units in a month, these costs will remain approximately the same. Variable costs change with changes in production volume. For example, these include the costs of raw materials, packaging materials, product delivery costs and wages of production workers. The more products you produce, the higher your variable costs will be.

Add together all the variable costs for the time period under consideration. Having identified all variable costs, calculate their total value for the analyzed period of time. For example, your manufacturing operations are fairly simple and involve only three types of variable costs: raw materials, packaging and shipping costs, and worker wages. The sum of all these costs will be the total variable costs.

Divide total variable costs by production volume. If you divide the total amount of variable costs by the volume of production over the analyzed period of time, you will find out the amount of variable costs per unit of production. The calculation can be represented as follows: v = V Q (\displaystyle v=(\frac (V)(Q))), where v is the variable cost per unit of output, V is the total variable cost, and Q is the volume of production. For example, if in the above example the annual production volume is 500,000 units, then the variable cost per unit would be: 1550000 500000 (\displaystyle (\frac (1550000)(500000))), or 3, 10 (\displaystyle 3,10) ruble

Application of the minimax calculation method

Identify combined costs. Sometimes some costs cannot be clearly classified as variable or fixed costs. Such costs may vary depending on the volume of production, but may also be present when production is at a standstill or there are no sales. Such costs are called combined costs. They can be broken down into fixed and variable components to more accurately determine the amount of fixed and variable costs.

Estimate costs according to the level of production activity. To break down combined costs into fixed and variable components, you can use the minimax method. This method estimates the combined costs of the months with the highest and lowest production volumes and then compares them to identify the variable cost component. To begin the calculation, you must first identify the months with the highest and lowest volume of manufacturing activity (output). For each month in question, record production activity in some measurable quantity (for example, machine hours expended) and the associated combined cost amount.
- Let's say that your company uses a waterjet cutting machine in production to cut metal parts. For this reason, your company has variable water costs for production, which depend on its volume. However, you also have constant water costs associated with maintaining your business (for drinking, utilities, and so on). In general, the costs for water in your company are combined.
- Let's say that in the month with the highest volume of production, your water bill was 9,000 rubles, and at the same time you spent 60,000 machine hours on production. And in the month with the lowest production volume, the water bill was 8,000 rubles, while 50,000 machine hours were spent.
Calculate the variable cost per unit of production (VCR). Find the difference between the two values of both indicators (costs and production) and determine the value of variable costs per unit of production. It is calculated as follows: V C R = C − c P − p (\displaystyle VCR=(\frac (C-c)(P-p))), where C and c are costs for months with high and low production levels, and P and p are the corresponding levels of production activity.

Determine the total variable costs. The value calculated above can be used to determine the variable part of the combined costs. Multiply the variable costs per unit of production by the appropriate level of production activity. In the example under consideration, the calculation will be as follows: 0.10 × 50000 (\displaystyle 0.10\times 50000), or 5000 (\displaystyle 5000) rubles for the month with the lowest production volume, and 0.10 × 60000 (\displaystyle 0.10\times 60000), or 6000 (\displaystyle 6000) rubles for the month with the highest production volume. This will give you the total variable water costs for each month in question. They can then be subtracted from the total combined costs to arrive at fixed costs for water, which in both cases will be 3,000 rubles.

Using variable cost information in practice

Assess trends in variable costs. In most cases, increasing production volume will make each additional unit produced more profitable. This is because fixed costs are spread over more units of production. For example, if a business that produced 500,000 units of product spent 50,000 rubles on rent, these costs in the cost of each unit of production amounted to 0.10 rubles. If the production volume doubles, then the rental costs per unit of production will already be 0.05 rubles, which will allow you to get more profit from the sale of each unit of goods. That is, as sales revenue increases, the cost of production also increases, but at a slower pace (ideally, in the unit cost of production, the variable costs per unit should remain unchanged, and the component of the fixed costs per unit should fall).

Use the percentage of variable costs in the cost price to assess risk. If you calculate the percentage of variable costs in the unit cost of production, you can determine the proportional ratio of variable and fixed costs. The calculation is made by dividing the variable costs per unit of production by the cost per unit of production using the formula: v v + f (\displaystyle (\frac (v)(v+f))), where v and f are respectively variable and fixed costs per unit of production. For example, if fixed costs per unit of production are 0.10 rubles, and variable costs are 0.40 rubles (with a total cost of 0.50 rubles), then 80% of the cost is variable costs ( 0.40 / 0.50 = 0.8 (\displaystyle 0.40/0.50=0.8)). As an outside investor in a company, you can use this information to assess the potential risk to the company's profitability.

Swipe comparative analysis with companies in the same industry. First, calculate your company's variable costs per unit. Then collect data on the value of this indicator from companies in the same industry. This will give you a starting point for assessing your company's performance. Higher variable costs per unit may indicate that a company is less efficient than others; whereas a lower value of this indicator can be considered a competitive advantage.

The value of variable costs per unit of output above the industry average indicates that the company spends more money and resources (labor, materials, utilities) on production than its competitors. This may indicate its low efficiency or the use of too expensive resources in production. In any case, it will not be as profitable as its competitors unless it cuts its costs or increases its prices.
On the other hand, a company that is able to produce the same goods at a lower cost is selling competitive advantage in obtaining greater profits from the established market price.
This competitive advantage may be based on the use of cheaper materials, cheaper labor or more efficient production facilities.
For example, a company that purchases cotton at a lower price than other competitors can produce shirts with lower variable costs and charge lower prices for the products.
Public companies publish their reports on their websites, as well as on the websites of the exchanges on which their securities are traded. Information about their variable costs can be obtained by analyzing the "Income Statements" of these companies.

Conduct a break-even analysis. Variable costs (if known) in combination with fixed costs can be used to calculate the break-even point for the new production project. The analyst is able to draw a graph of the dependence of fixed and variable costs on production volumes. With its help, he will be able to determine the most profitable level of production.

The manual is presented on the website in an abbreviated version. This version does not include testing, only selected tasks and high-quality assignments are given, and theoretical materials are cut by 30%-50%. I use the full version of the manual in classes with my students. The content contained in this manual is copyrighted. Attempts to copy and use it without indicating links to the author will be prosecuted in accordance with the legislation of the Russian Federation and the policies of search engines (see provisions on the copyright policies of Yandex and Google).

10.11 Types of costs

When we looked at the periods of production of a company, we said that in the short term the company can not change all the factors of production used, whereas in long term all factors are variable.

It is precisely these differences in the possibility of changing the volume of resources when changing production volumes that forced economists to divide all types of costs into two categories:

fixed costs;
variable costs.

Fixed costs(FC, fixed cost) are those costs that cannot be changed in the short term, and therefore they remain the same with small changes in the volume of production of goods or services. Fixed costs include, for example, rent for premises, costs associated with maintaining equipment, payments to repay previously received loans, as well as all kinds of administrative and other overhead costs. Let's say it is impossible to build a new oil refining plant within a month. So if next month oil company plans to produce 5% more gasoline, this is only possible at existing production facilities and with existing equipment. In this case, a 5% increase in output will not lead to an increase in the costs of servicing equipment and maintaining production facilities. These costs will remain constant. Only the amounts of wages paid, as well as the costs of materials and electricity (variable costs) will change.

The fixed cost graph is a horizontal line.

Average fixed costs (AFC, average fixed cost) are fixed costs per unit of output.

Variable costs(VC, variable cost) are those costs that can be changed in the short term, and therefore they grow (decrease) with any increase (decrease) in production volumes. This category includes costs for materials, energy, components, and wages.

Variable costs show the following dynamics depending on the volume of production: up to a certain point they increase at a killing pace, then they begin to increase at an increasing pace.

The variable cost schedule looks like this:

Average variable costs (AVC, average variable cost) are variable costs per unit of output.

The standard Average Variable Cost graph looks like a parabola.

The sum of fixed costs and variable costs is total costs (TC, total cost)

TC = VC + FC

Average total costs(AC, average cost) is the total cost per unit of production.

Also, average total costs are equal to the sum of average fixed and average variable costs.

AC = AFC + AVC

AC graph looks like a parabola

A special place in economic analysis is occupied by marginal cost. Marginal cost is important because economic decisions typically involve marginal analysis of available alternatives.

Marginal cost (MC, marginal cost) is the increment in total costs when producing an additional unit of output.

Since fixed costs do not affect the increment in total costs, marginal costs are also an increment in variable costs when producing an additional unit of output.

As we have already said, formulas with derivatives in economic problems are used when smooth functions are given, from which it is possible to calculate derivatives. When we are given individual points (discrete case), then we should use formulas with increment ratios.

The marginal cost graph is also a parabola.

Let's draw a graph of marginal costs together with graphs of average variables and average total costs:

The above graph shows that AC always exceeds AVC since AC = AVC + AFC, but the distance between them decreases as Q increases (since AFC is a monotonically decreasing function).

The graph also shows that the MC graph intersects the AVC and AC graphs at their minimum points. To justify why this is so, it is enough to recall the relationship between average and maximum values already familiar to us (from the “Products” section): when the maximum value is below the average, then the average value decreases with increasing volume. When the marginal value is higher than the average value, the average value increases with increasing volume. Thus, when the marginal value crosses the average value from bottom to top, the average value reaches a minimum.

Now let’s try to correlate the graphs of general, average, and maximum values:

These graphs show the following patterns.

Allows you to calculate the minimum price of goods/services, determine the optimal sales volume and calculate value expression enterprise expenses. There are various methods of calculating by type of costs, the main ones are given below.

Production costs - calculation formulas

Calculation of production costs is easily carried out on the basis of estimate documentation. If such forms are not drawn up in the organization, data from the reporting period of accounting will be required. It should be taken into account that all costs are divided into fixed (the value remains unchanged over the period) and variable (the value changes depending on production volumes).

Total production costs - formula:

Total costs = Fixed costs + Variable costs.

This calculation method allows you to find out the total costs for the entire production. Detailing is carried out by departments of the enterprise, workshops, product groups, types of products, etc. Analysis of indicators over time will help predict the volume of production or sales, expected profit/loss, the need to increase capacity, and the inevitability of reducing expenditures.

Average production costs - formula:

Average costs = Total costs / Volume of manufactured products/performed services.

This indicator is also called the total cost of the product/service. Allows you to determine the minimum price level, calculate the efficiency of investing resources for each unit of production, and compare mandatory costs with prices.

Marginal cost of production - formula:

Marginal costs = Change in total costs / Change in production volume.

The indicator of so-called additional costs makes it possible to determine the increase in costs for the production of additional volume of GP in the most profitable way. At the same time, the amount of fixed costs remains unchanged, while variable costs increase.

Note! In accounting, an enterprise's expenses are reflected in cost accounts - 20, 23, 26, 25, 29, 21, 28. To determine costs for the required period, you should sum up the debit turnover on the accounts involved. Internal turnover and balances at refineries are subject to exclusion.

How to calculate production costs - example

Volume of production of GP, pcs.	Total costs, rub.	Average costs, rub.	Fixed costs, rub.	Variable costs, rub.

From the above example it is clear that the organization incurs fixed costs in the amount of 1200 rubles. in any case - in the presence or absence of production of goods. Variable costs per 1 piece. initially amount to 150 rubles, but costs are reduced as production increases. This can be seen from the analysis of the second indicator - Average costs, which decreased from 1350 rubles. up to 117 rub. per 1 unit of finished product. Calculation of marginal costs can be determined by dividing the increase in variable costs by 1 unit of product or by 5, 50, 100, etc.

The variety of ways to make a profit for enterprises in any industry of production and sale of services, on the one hand, creates unlimited opportunities for the development of a particular business, on the other hand, each type of activity has a certain threshold of efficiency, determined by break-even.

In turn, the amount of revenue that guarantees profit directly depends on the total costs of production and sales of products.

What it is?

For the purposes of analyzing the break-even of activities, the total expenses of an enterprise are usually divided into two main categories:

— costs, the amount of which directly depends on the volume of production and sale of services (depending on the chosen direction of the company’s operation), i.e., in fact, they are directly proportional to any fluctuations in the volume of core activities;
fixed costs are costs the amount of which does not change in the medium term (a year or more) and does not depend on the volume of the company’s core activities, i.e. they will exist even if the activity is suspended or terminated.

Having considered fixed costs using the example of an enterprise, it is easier to understand their essence and interdependence with the volume of core activities.

So, they include the following expense items:

depreciation charges on the company's fixed assets;
rent, tax payments to the budget, contributions to extra-budgetary funds;
bank expenses for servicing current accounts, loans of the organization;
wage fund for administrative and managerial personnel;
other general business expenses necessary to ensure the normal functioning of the enterprise.

Thus, the essence of fixed costs of any organization comes down to their functional necessity for the implementation of activities. They can and most often do change over time, but the reason for this is external factors(change in tax burden, adjustment of bank service conditions, renegotiation of contracts with service organizations, change in tariffs for public utilities and so on.).

Internal factors influencing changes in fixed costs are a significant change in corporate policy, the personnel remuneration system, a significant change in the volume or direction of the company’s activities (not just a change in volume, but a radical transition to a new level).

Under the influence of all these factors, fixed costs change; they are usually characterized by sharp fluctuations in expenditure amounts.

For the purposes of accounting and analysis, enterprise expenses are usually divided into constant and variable, using the following methods:

Based on experience and knowledge, through management decision expenses are assigned a specific category. This method is good when the company is just starting its activities and there are simply no other ways to attribute costs. It is characterized by a high level of subjectivity and requires revision in the long term.
Based on data from the conducted analytical work to search, evaluate and differentiate all expenses by category based on their behavior under the influence of the factor of changes in the volume of core activities. It is the most acceptable, since this method is more objective.

To see which expenses should be assigned to which group, watch the following video:

How to calculate them?

Fixed costs are calculated using the formula:

POSTz = Z salary + Z rent + Z banking services + Depreciation + Taxes + General household services, Where:

FOSTz – fixed expenses;
W salary – costs for salaries of administrative and managerial personnel;
Rent – rental expenses;
3 banking services – banking services;
General expenses - other general expenses.

To find the average fixed cost per unit of output, you must use the following formula:

SrPOSTz = POSTz / Q, Where:

Q – volume of products (its quantity).

The analysis of these indicators must be carried out in dynamics, assessing the retrospective values at different periods of time, including with a joint analysis of other economic indicators. This will allow you to see the interconnection of processes characteristic of the enterprise, which means you can get a cost management tool in the future.

Economic sense

Analysis of fixed costs, carried out both on an operational basis and for the purpose of strategic planning, allows you to assess the capabilities of an enterprise to improve the efficiency of its activities. This is the key economic meaning of this category.

The simplest and most accessible way to analyze the performance of a company is to evaluate the break-even point indicator, including dynamics. To carry out calculations, data on the amount of fixed costs, unit price and average variable costs is required:

Tb = POSTz / (C1 – SrPEREMz), Where:

Тb – break-even point;
POSTz – constant expenses;
Ц1 – price per unit. products;
Avperemz – average variable costs per unit of production.

The break-even point is an indicator that allows you to see the boundary beyond which the company’s activities begin to make a profit, as well as analyze the dynamics of the impact of changes in costs on the production volume and profit of the organization. A decrease in the break-even point with constant variable costs is assessed positively; this signals an increase in the efficiency of the enterprise’s expenses. The growth of the indicator should be assessed positively when it occurs against the background of an increase in sales volumes, i.e., it indicates an increase and expansion of the scope of activity.

Thus, accounting, analysis and control of fixed costs, reducing their load on a unit of production are mandatory measures necessary for every enterprise to achieve competent management of resources and capital.

10.11 Types of costs

When we looked at the periods of production of a firm, we said that in the short run the firm can change not all the factors of production used, while in the long run all factors are variable.

It is precisely these differences in the possibility of changing the volume of resources when changing production volumes that forced economists to divide all types of costs into two categories:

fixed costs;
variable costs.

Fixed costs(FC, fixed cost) are those costs that cannot be changed in the short term, and therefore they remain the same with small changes in the volume of production of goods or services. Fixed costs include, for example, rent for premises, costs associated with maintaining equipment, payments to repay previously received loans, as well as all kinds of administrative and other overhead costs. Let's say it is impossible to build a new oil refining plant within a month. Therefore, if next month an oil company plans to produce 5% more gasoline, then this is only possible on existing production facilities and with existing equipment. In this case, a 5% increase in output will not lead to an increase in the costs of servicing equipment and maintaining production facilities. These costs will remain constant. Only the amounts of wages paid, as well as the costs of materials and electricity (variable costs) will change.

The fixed cost graph is a horizontal line.

Average fixed costs (AFC, average fixed cost) are fixed costs per unit of output.

Variable costs show the following dynamics depending on the volume of production: up to a certain point they increase at a killing pace, then they begin to increase at an increasing pace.

The variable cost schedule looks like this:

Average variable costs (AVC, average variable cost) are variable costs per unit of output.

The standard Average Variable Cost graph looks like a parabola.

The sum of fixed costs and variable costs is total costs (TC, total cost)

TC = VC + FC

Average total costs (AC, average cost) are the total costs per unit of production.

Also, average total costs are equal to the sum of average fixed and average variable costs.

Costs. Production cost formulas

AC = AFC + AVC

AC graph looks like a parabola

Marginal costs occupy a special place in economic analysis. Marginal cost is important because economic decisions typically involve marginal analysis of available alternatives.

Marginal cost (MC, marginal cost) is the increment in total costs when producing an additional unit of output.

Since fixed costs do not affect the increment in total costs, marginal costs are also an increment in variable costs when producing an additional unit of output.

The marginal cost graph is also a parabola.

Let's draw a graph of marginal costs together with graphs of average variables and average total costs:

The above graph shows that AC always exceeds AVC since AC = AVC + AFC, but the distance between them decreases as Q increases (since AFC is a monotonically decreasing function).

Now let’s try to correlate the graphs of general, average, and maximum values:

These graphs show the following patterns:

Accurate calculation of variable costs based on financial statements

Natalya Belorusova,
Leading Economist of LLC PVP "Contact"
Financial Director
No. 10 (98) October 2010

During the analysis of my financial statements financiers of PVP "Contact" have found a way to more accurately calculate the variable costs of a trading company. All that was needed was an official balance sheet and income statement.

The production and implementation enterprise "Contact" specializes in the supply of medical and dental equipment.

Calculation of production costs

Branches of the enterprise operate in four cities of the Siberian region.

Despite the fact that the Contact company was founded almost 20 years ago, in 1992, a full-fledged financial service created only three years ago. Now this service includes not only the accounting department, but also the economic planning department. The main reason for creating such a financial unit was the increase in the scale of the business and, as a consequence, the need to monitor its financial condition.

One of the primary tasks of financiers was the calculation and analysis of such indicators as marginal income, break-even point, as well as determining achievable business growth rates*. Interestingly, the company has no management accounting was not carried out. Therefore, we had to use only financial statements data. In particular, limit yourself to the balance sheet and profit and loss account. Due to a lack of information, the company encountered a number of problems related to the calculation of the previously mentioned indicators. As it turned out, due to the peculiarities of accounting, it is impossible to clearly distinguish between the company’s fixed and variable expenses. Now let's talk about everything in order and in detail - how the company solved the listed problems.

Specifics of accounting for costs of transporting goods

Since the main activity of PVP “Contact” is wholesale, variable costs include the cost of goods and transportation and procurement costs, the correct assessment of which has caused certain difficulties. The fact is that these expenses could either be attributed to the cost of goods or included in business expenses.

Table 1. Fragment of the profit and loss report for the month (accounting and management accounting), rub.

Table 2. Deviations of financial indicators when using accounting and management (adjusted) data

In the first case, the delivery of goods is highlighted as a separate line in the delivery note. In accordance with the company's accounting policy, transportation costs are immediately charged to the cost of goods (account 41 “Goods”) and automatically become part of the cost of goods (line 021 “Including goods” in the income statement).

But transportation costs can also be presented in a separate act. For example, if delivery was provided not by the supplier of the goods itself, but by a third-party carrier. Such costs are accumulated in account 44 “Sales expenses” and then written off as expenses for the period in proportion to the volume of goods sold.

Consequently, the cost of goods reflected in Form No. 2 (profit and loss statement) takes into account only part of the transportation costs.

Technique for determining variable costs

To highlight the amount of variable transport costs, which, due to certain accounting nuances, fell into the composition of commercial expenses, the production and implementation enterprise "Contact" used the following formula:

Write-off of transport costs = Balance of transport costs at the end of the period: Balance of goods at the end of the period x Write-off of goods,

Where Balance of transportation costs at the end of the period- this is the debit balance on account 44 “Sales expenses”, which in the case of PVP “Contact” is reflected in the balance sheet (p. 213). In some organizations, the balance of account 44 may be reflected in the line “Other inventories and costs” (p. 217);

—Balance of goods at the end of the period is the line " Finished products and goods for resale” balance sheet (p. 214). In the case of trading companies, it usually reflects only goods for resale;

—Write-off of goods for the period is reflected in the line “Cost of goods sold” (line 021) in the income statement.

Perhaps it’s worth warning right away that it is not possible to accurately isolate the costs of transporting goods from business expenses, having only annual or quarterly financial statements. And the Contact company had to verify this at own experience. The fact is that the error in the calculations is too significant. This is especially evident in situations where during the year the share of transport costs in the cost structure fluctuates significantly.

Therefore, in such cases it will be more correct to use data from monthly interim financial statements. This is exactly what they did in PVP “Contact”.

By the way, with this approach, determining the amount of adjustments for the entire year will not be particularly difficult. To do this, it is enough to sum up the previously calculated monthly write-offs of transportation costs.

Once write-offs (adjustments) to transportation expenses are determined to produce the correct figures on the income statement, the adjustments are included in cost of goods sold. And at the same time they should be excluded from business expenses. Example

Example

For a trading company, according to the balance sheet, the balance of transportation expenses at the end of the month was 1,342 rubles, the balance of goods at the end of the period was 106,965 rubles, and the cost of goods sold, appearing in the profit and loss statement, was 31,506 rubles.

Accordingly, the amount of adjustment for transportation costs will be 395 rubles. (1342: 106,965 x 31,506). The income statement before and after adjustment is presented in Table 1 on page 41. Significant changes are visible to the naked eye. The deviation in gross profit reaches almost 6 percent, in marginal profit - more than 9 percent and in the margin of financial strength - 8 percent.

What did the fixes affect?

The discrepancies in financial indicators of accounting and management accounting (before and after adjustments) reached 9 percent. And this despite the fact that often less significant deviations can lead to more serious errors when calculating indicators that are significant for company management.

In conclusion, it is worth saying that the methodology for determining variable costs and calculating basic financial indicators used in the Contact PVP may well be adopted in other trading companies. Provided that their variable costs include mainly the cost of the product and the cost of its transportation. This will allow management to operate with more accurate data in their work.

Marginal cost formula

Concept of marginal cost

The marginal cost formula is calculated by the ratio of the increase in total costs to the increase in the quantity of goods.

How to calculate costs?

Also, the marginal cost formula is determined by the ratio of the increase in variable costs (the change in the sum of total costs is equal to the change in the variable costs of each additional unit) to the increase in the quantity of goods.

Types of costs

Each enterprise, in its quest to obtain maximum profit, incurs costs for the acquisition of production factors, while striving to achieve the level of production of a given volume of output at the lowest cost.

An enterprise cannot influence the price of resources, but knowing the dependence of production volume on the amount of variable costs, costs are calculated.

In accordance with the organization, expenses are classified into groups:

Individual expenses for a specific company,
Social expenses are the costs of producing a certain type of product that are borne by the entire economy,
Opportunity costs
Production costs, etc.

Also, costs are classified into 2 groups:

Fixed costs include investments in order to ensure stable production. This type costs are constant and do not depend on production volume;
Variable costs include costs that are subject to easy adjustment without causing damage to the enterprise's activities (they change in accordance with production volumes).

Marginal cost formula

Marginal cost is the change in the total cost of the enterprise in the process of producing each additional unit of a product.

The marginal cost formula is as follows:

MC = TC/Q

Here TC is the increase (change) in total costs;

Q – increase (change) in the volume of product output.

To calculate the increase in total costs, use the following formula:

TS = TS2 - TS1

To calculate the change in output, the following equality is used:

Q = Q2 - Q1

Substituting these equalities into the marginal cost formula, we obtain the following formula:

MC = (TC2 - TC1) / (Q2 - Q1)

Here Q1, T1 is the initial quantity of output and the corresponding quantity of costs,

Q2 and TC2 – the new quantity of output and the corresponding value of costs.

Meaning of marginal cost

Calculating marginal costs makes it possible to determine the degree of benefit from producing each additional unit of goods.

Marginal costs are an important economic tool that determines the strategy of industrial development. The level of marginal costs makes it possible to show the volume of production at which the enterprise needs to stop in order to obtain the maximum amount of profit.

In the case of an increase in production and sales volumes, the enterprise's costs change as follows:

A uniform change indicates that marginal cost is constant, equal to variable cost per unit of output;
The accelerated change reflects rising marginal costs as output increases;
A slow change shows a reduction in the firm's marginal costs if its costs for purchased raw materials decrease with increasing output.

Examples of problem solving

Analysis of tax costs and tax burden indicators

The problem of optimizing the tax burden for our economy is one of the most pressing. If the tax system does not stimulate business development and, especially in the production sector, then the expected economic recovery will not occur. In this regard, it should be noted the positive changes made to the domestic tax system by the new Tax Code. However, specific results can be assessed after several years. An assessment of the current tax burden on an enterprise is given using the example of one of manufacturing enterprises Orenburg region.

Table 1 - Calculation of the structure of tax costs

Indicators	Base year	Reporting year
Amount (million rubles)	Oud. weight %	Amount (million rubles)	Oud. weight %
Taxes reimbursed through the price of products (indirect taxes) – total: incl. VAT, etc.		41,1 34,9		40,2 35,6
Taxes reimbursed through cost, total: including: - Land tax - User tax highways— Unified social tax, etc.	5,5 6,5 4,2	32,9 3,4 4,4 2,9	5,5 8,0 4,4	33,9 3,2 4,6 2,5
Taxes attributable to financial results– total: including: – Property tax, etc.		4,1 4,1		4,1 3,4
Taxes reimbursed from net profit - total: including: - Income tax - Payments for excess emissions of pollutants in environment etc.		21,9 17,1 4,8		21,8 17,2 4,6
Total tax costs

Calculations in table 11.1 showed that the majority of taxes, more than 40%, are indirect. The latter mainly include VAT. The second place in the composition of tax costs is occupied by taxes attributable to production costs, amounting to about 33%. The share of taxes attributable to the net profit of the enterprise is also significant - more than 20%.

The role of various groups of tax costs depends on the specifics of production, industry and other factors, but big picture their structure is typical for most of them, which is confirmed by the results of our study.

Rapid growth in sales revenue, profit and financial resources(balance sheet currency) compared to the increase in tax costs contributed to a reduction in the tax burden on gross profit, financial resources and sales, both in terms of general and specific indicators (Table 11.2).

Table 11.2 – Data for calculating the tax burden on an enterprise

However, the increase in the mass of tax costs significantly weakened the positive trends, and in terms of net profit and the number of employees showed an increase in tax pressure (Table 11.3).

The insufficient amount of net profit of an enterprise is the reason that more than 80% of its amount goes into tax payments. The growth in sales volumes contributed to the fact that the tax burden on income has decreased, but exceeds 50% of the amount of income and sales proceeds, which reduces the interest of entrepreneurs in business development.

Table 11.3 – Calculation of the tax burden on an enterprise

Indicators	Base year	Reporting year	Adjusted figure	Deviation
general	incl. due to
amounts of taxes (tax costs)	sources of tax reimbursement or enterprise resources
Indicators of the total tax burden on the enterprise in % in relation to the indicators: a) income b) sales c) financial resources d) profit before tax e) per 1 employee f) net profit				+1 -2 -8 -25 +8 +22	+8 +8 +10 +35 +10 +63	-7 -10 -18 -60 -2
Particular indicators of the tax burden by sources of covering tax costs (%): a) sales b) cost c) profit before tax d) net profit				-2 +1 -1 +4	+2 +5 +1 +13	-4 -4 -2 -9

Therefore, constant research is needed to assess the tax burden based on reporting data, because Changes in tax legislation significantly change the tax burden on the enterprise.

Changes made to tax legislation in 2002 were aimed at reducing the tax rate for income tax to 24% from 35% in 2001. However, as calculations in table 11.3 showed, this did not significantly reduce the overall tax burden. Thus, in relation to income, the load increased by 1%, and in relation to net profit by 22%. These changes are due to the fact that the growth rate of tax costs outpaced the growth rate of income and net profit. The high increase in tax costs, including income tax, is due to the rigidity of the tax system in terms of penalties and fines for violation of tax legislation, as well as an increase in the number of costs not taken into account when forming the tax base for income tax. In this regard, the profit of the enterprise formed in accordance with the Regulations on accounting significantly lower than the profit generated for tax purposes in accordance with the requirements of Chapter 25 of the Tax Code “Organizational Income Tax”.

A reduction in the tax burden at the enterprise under study took place in terms of the load on the balance sheet currency - the total amount of the enterprise's financial resources, sales revenue, and profit before tax. The main reason for this decline is that the growth rate of tax costs lagged behind the growth rate of the listed indicators. Consequently, expanding the volume of activity and increasing investment in business potentially reduces the tax burden. Its factor analysis confirms the importance of these conclusions: due to income growth, the tax burden decreased by 7 points, revenue by 10, financial resources by 18, and profit before tax by 60.

Private indicators of the tax burden had mixed changes. The increase in taxes attributable to cost is due to an increase in tax bases: revenue, wages and others. A significant decrease in net profit as a result of the payment of penalties to the budget for violation of tax laws led to the fact that the withdrawal of net income increased from 80 to 84%. Thus, in practice, a reduction in tax rates does not always lead to a reduction in the tax burden.

Problem No. 71. Cost calculation

A study of the reasons for the increase in violations of tax legislation at individual enterprises showed that they can be caused by frequent changes, inconsistency with other regulations, and insufficient competence of the enterprise's accounting staff. This requires strengthening control on the part of the management apparatus over the timeliness of settlements with the budget, as well as the involvement of auditors in order to timely correct errors in accounting.

Along with this, at the legislative level, simplification of the tax system is required. Practice has shown that the new Tax Code has not yet solved this problem. On the contrary, experts note a significant complication of tax legislation and the strengthening of its fiscal function.

10. Concept and classification of 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, the value of which 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 are different 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 cost, taking the form of cash payments to the 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 changes depending on changes in production volume. If products are not produced, then they are equal to zero. Variable costs include the costs 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 a company, equal to the sum of 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.

Initially, 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.

How to calculate variable costs (examples, formula)

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. When the additional cost of producing each additional unit of output is less 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, wage, 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); products sold, current - assessment of sold products at restored cost; technological - the amount of costs for the 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

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