Costs - these are expenses, expenses of monetary resources that must be made for the production of goods. For the company, such expenses act as payment for acquired factors of production.
Costs are divided into constants, variables and general. Fixed costs - these are the costs that the company incurs in the production cycle. Fixed costs are determined by the company on its own. These costs will be present on all cycles of production of goods at this enterprise. Variable costs - costs that are transferred in full to the finished product. Total costs - costs that the company incurs during the production stage. That is, total costs represent fixed and variable costs in total.
Also, costs are classified into accounting (explicit costs reflected in the balance sheet), as well as alternative. Accounting costs represent the price of the resources used at their acquisition prices. Opportunity costs are both explicit and implicit costs together.
In addition, allocate external, private and public costs. External costs are part of the opportunity costs for which the company is not responsible. These costs are covered from the funds of other members of the company. For example, if an enterprise pollutes nature with its work and is not responsible for it, then the costs of compensating for pollution will be the external costs of other enterprises or individuals. Private costs - part of the costs that are generated directly by those involved in this activity. Social costs are the sum of external and private costs.
Division of costs into implicit and explicit
As already noted, the division of costs into accounting and alternative results in a classification of implicit and explicit.
The explicit costs of the activity are determined by the total costs of the company to pay for the use of external resources, that is, those resources that are not owned by the enterprise. For example, it can be raw materials, fuel, materials, labor and so on. Implicit costs determines the value of internal resources, that is, the resources that a given company owns.
An example of implicit costs can be the salary of an entrepreneur, which he would receive if he worked for hire. The owner of capital property also incurs implicit costs, since he could sell his property and put the money into the bank at a percentage or lease the property and receive income. When solving current problems, you should always take into account implicit expenses, and if they are large enough, it is better to change the scope of activity.
Thus, explicit costs are opportunity costs that take the form of payments to suppliers of intermediate products and factors of production for the enterprise. This category of expenses includes wages for workers, payment of transportation costs, payment of suppliers of resources, utility bills, payment of services of insurance companies, banks, cash costs for the purchase and rental of machines, equipment, structures and buildings.
Implicit costs mean the opportunity costs of using resources that belong directly to the enterprise, that is, unpaid costs. Thus, the implicit costs include cash payments, which the company could receive with a better use of its resources. For the owner of capital, implicit costs include the profit that the owner of the property could receive by investing in some other field of activity, and not in this field.