Before proceeding to production, any company should have an idea of how much revenue it will receive as a result of the sale of goods released. To do this, it is necessary to study consumer demand, develop pricing policies and compare the estimated revenue with the amount of future expenses. Production costs include the inclusion of costs incurred by the company as a result of production and sales of products.
The issue of spending is key in the market economy. The competitiveness of any company directly depends on the value of this indicator. If the managerial staff has a clear idea of production costs, he will be able to correctly determine the ways and methods that will allow them to be reduced. In turn, this will allow you to get the most out of the used material resources and achieve the greatest efficiency of the production process.
It is the magnitude of the level of costs that affects the size of the company's income, the possibility of its modernization and expansion, as well as competitiveness in the market. The costs of the enterprise, incurred in the process of production, show what it cost the production of this product. When analyzing commercial activities, various types of costs are taken into account. Allocate fixed and variable costs, as well as gross.
The first type of costs include expenses that are incurred regardless of the number of products produced. The company bears these costs even in the absence of a manufactured product. These include:
- rental payments for the premises used;
- depreciation of production capacity;
- the costs of maintaining the administration and management;
- the cost of equipment and its maintenance;
- the cost of electricity and heat consumed for technological premises;
- protection of the production area;
- the amount of money spent on interest payments on loans.
To variable costs include costs, the value of which is associated with the volume of production. These include the cost of raw materials used for the manufacture of goods, as well as the wages of workers directly involved in the technological process.
Fixed and variable costs in total give the total (gross) costs of the organization. This is the totality of all expenses of the enterprise during a given period of time, which are necessary for the manufacture of a particular product.
To conduct a more detailed analysis of the company with the aim of making the right management decisions, determine the amount of costs per unit of production. To do this, there are the following indicators:
- average fixed costs;
- average cost variables;
- average general;
- marginal cost.
Consider the total costs of the organization. They are divided into fixed and variable costs. It depends on the situation and the time period. Contributions to insurance and pension funds made on the basis of an accepted collective agreement can be classified as fixed costs. The variable costs of these same contributions will arise in the long run. It is then that there will be a need to increase the volume of manufactured goods and to replace technological equipment.
In each case, the organization itself makes the choice of how to divide its costs into fixed and variable costs. For this, the most capacious production sector is taken into account. It may include labor, materials or fixed assets. If the technological process is time-consuming, then the payroll with all the accruals on it is classified as variable costs. They include materials with a large amount of their costs. In rare cases, the variable costs are the amount of depreciation of non-current assets. This occurs in capital-intensive production.