Fixed and variable costs

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2020-07-02 22:30:49

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Before you start production, any company needs to have an idea of what kind of income she will receive as a result of implementation of the released product. This requires the study of consumer demand, development of pricing strategy and compare the expected revenue amount for future expenses. Production costs include costs incurred by the company in the production and sales of products.

The Question of costs is key in the market economy. The value of this indicator depends directly on the competitiveness of any company. If the management staff has a clear view on the costs of production, he will be able to correctly determine the ways and methods that will allow them to achieve their reduction. In turn, this will enable the maximum impact from the used material resources and the achievement of maximal efficiency of the production process.

The value of the level of costs affects the income of a company, the possibility of its modernization and expansion, as well as on the competitiveness in the market. The expenses of the enterprise incurred in the process of production to show what it cost to produce this product. Producing analysis of the business, taken into account different types of costs. Allocate fixed and variable costs, and gross.

The first type of costs include costs that are irrespective of the number of products. These costs the company incurs even in the absence of manufactured goods. These include:

the rental payments for the premises;

- depreciation of production facilities;

- the costs of administration and management;

- the cost of the equipment and its content in good condition;

- the cost of electricity and heat consumed for production facilities;

- protection of the production zone;

- the amount of money spent on interest payments on loans.

The variable costs include costs, the value of which is related to the volume of products. These include the cost of raw materials used in the manufacture of goods and wages of employees directly engaged in the process.

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Fixed and variable costs equals total (gross) costs of the organization. This is the sum of all expenses of the enterprise during a given period of time, which are necessary for the production of certain goods.

For a more detailed analysis of the activities of the company to make good management decisions, identify costs per unit of output. For this there are the following characteristics:

- the average fixed costs;

- average cost variables;

- average total;

- marginal costs.

Consider the common expenses of the organization. They are divided into fixed and variable costs. It depends on the situation and time period. Contributions to insurance and pension funds, produced on the basis of a collective agreement, can be classified as cost constant. Variable costs of these contributions will occur in the long term. It was then that there was a need to increase the volume of manufactured goods and the replacement of technological equipment.

In each case, the organization itself makes the choice of how to divide your expenses into fixed and variable costs. This is taken into account the most capacious sector of production. It can be classified as labor, materials, or fixed assets. If the process is labor intensive, the wage Fund, with all charges it will be referred to as variable costs. They also include materials with a large amount of their expenses. In rare cases, variable costs are the sum of depreciation of non-current assets. This happens when asset-intensive production.


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Alin Trodden - author of the article, editor
"Hi, I'm Alin Trodden. I write texts, read books, and look for impressions. And I'm not bad at telling you about it. I am always happy to participate in interesting projects."

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