Production costs in the short term, their essence and relevance.

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2020-07-03 01:22:05

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Costs, or other costs, this is a budget that all business entities are actively trying to minimize. The balance sheet for the reporting period can contain many expensive items, as long as their value was normal and allowed us to have a stable income, and thereby to develop. The magnitude of the costs in relation to production activities is quite frequently related to the concept of the cost of production. In this respect, between different economic schools often inflame the debate over whether to include the cost of sales in its total cost. On the one hand, this cost is closely related to the product itself, since without a properly structured marketing policy it is impossible to provide sales volume that covers all costs. In this case, it is clear that the enterprise is doomed to liquidation.

From the point of view of some economic experts, the costs associated with the promotion of products on the market and their advertising reaches its maximum value in the period of the production and distribution of innovative products, after which the curve of such costs on the chart tends to the bottom. From this it follows that the manufacturer, increasing production and sales over time to minimize these costs and their share of the real cost (the real cost is to understand all the costs associated with the production and sale of products). Thus, in this situation, the yield curve has the vector, looking up.

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In this regard, it argued that it is necessary to delineate the production costs for the production costs and the costs of implementation. Production costs in the short term can testify how profitable is the company in the long term. Such costs include costs of labor and material resources per unit of output, which, as a rule, must remain the same size. But this smooth course of events is characteristic only of a static and stable economy, which now seems unreal idyll. The costs of production and sale of products is subject to change from both external and internal factors, which can be attributed to seasonal demand, market changes, innovations and many others, including various force-majeure circumstances. Production costs in the short term, it is customary to optimize to constant value, so most manufacturers find it much easier to set the threshold of profitability for each product.

In today's economic science is considered relevant to classify the costs of transformation and transaction. If the first cost associated with processing materials in the final product implementation, the second applies to such expenses as protecting the trading position of the brand. These costs are not associated with creating value finished products. Production costs in the short term for the most part relate to the transformation costs.

Very often uneven changes in total costs lead to the fact that with the increase of the production volumes change, costs in relation to unit of output. Such costs are also called average. The average cost of production is calculated as the ratio of total costs and produced quantity. Initially, this cost is large, but in the process of growth of volume of production there is a tendency to its decrease. For small batch production it is essential to minimize production costs in the short term, because this fact will allow to fix on a certain level of fixed costs and not to lower the threshold of profitability.


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ZH: https://tostpost.com/zh/business/45459-production-costs-in-the-short-term-their-essence-and-relevance.html






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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