Talk about the costs, formula costs, and why they are used

In this article you will learn about the costs, formula costs, and will also understand the meaning of their division into different types.

Call Costs are monetary resources that you need to spend for carrying out economic activities. Analyzing costs (cost formulas are given below) it is possible to conclude about the efficiency of enterprise management of their resources.

These costs of production are divided into several types, depending on how the change will affect production volumes.

Fixed

Under fixed costs mean such costs, the value of which does not affect the volume of production. That is, their value will be the same as when the enterprise operates in emergency mode, fully utilizing the production capacity or, on the contrary, during idle time of production.

For Example, these costs may be administrative or any individual articles from the sum of overhead expenditures (office rent, maintenance costs engineering personnel not directly involved in the production process), wages of employees, deductions in insurance funds, the cost of license, software and others.

It is Worth noting that in fact absolutely constant these costs can not be named. Still, the volume of production may influence them, though not directly but indirectly. For example, the increase in volume of production may require a greater free space in the warehouses, additional maintenance mechanisms that wear out faster.

Often in the literature, economists often use the term “semi-fixed production costs”.

Variables

Unlike fixed costs, variable costs directly proportional to depend on the volume of output.

In this type include raw materials, materials, other resources that are involved in the production process, electricity and many other costs. For example, increasing the production of wooden boxes for 100 units, you must purchase a corresponding amount of material from which to produce them.

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The same cost can apply to different types

And the same costs can be of different types, and, accordingly, it will be different costs. Formula costs for which it is possible to calculate such costs, absolutely confirm this fact.

Take, for example, electricity. Light bulbs, air conditioners, fans, computers – all of this equipment, which is installed in the office, working by electricity. Mechanical equipment, machines and other equipment involved in the production process of goods, products, also consumes electricity.

In this financial analysis of electricity are clearly separated and assigned to different cost elements. Because to perform a correct prediction of future costs, and given the current costs, there should be a clear separation of the processes, depending on the intensity of production.

Total production costs

The Amount of variable and fixed costs is called “common cost”. The calculation formula is as follows:

IO = SP + Hyper

Where:

IO – total costs;

SP – fixed costs;

Hyper – variable costs.

With the help of this indicator determines the total level of costs. His analysis of the dynamics allows us to see processes optimization, restructuring, reducing or increasing the volume of production and management processes in the enterprise.

The Average cost of production

By dividing the sum of the unit cost of goods manufactured, you can find out average costs. The calculation formula is as follows:

IP = IO / Op

Where:

The IP – average cost;

Op – the volume of goods produced.

This figure is also called “full cost of one unit of produced goods”. Using this figure in the economic analysis, it is possible to understand how efficiently a company uses its resources for production. Unlike the General, average costs, the calculation formula of which is given above, show the effectiveness of funding 1 unit of output.

Marginal cost

For analysis of whether changes in the number of products using an indicator that reflects the costs of production for one additional unit. It's called "marginal costs". The calculation formula is as follows:

IPR = (Io2 – Io1) / (OP2 – Оп1)

Where:

Ypres – the marginal costs.

This calculation will be very useful if management of the company decided to increase production, expansion and other changes in production processes.

So, after you have learned about the costs, formula costs, it becomes clear why economic analysis clearly separates the costs of main production, administrative and overhead costs.