Production costs: definition, functions, types
Production costs are the basis for the calculation of financial indicators. This is a monetary expression of the use of production factors necessary to create a product. They are the main constraint of income and the main factor affecting the volume of output. In accounting, they are displayed as a cost estimate used in the production of resources, fuel and materials. Such costs are less than the value of the goods by the amount of profit.
Functions show the dependence of the volume of production and the minimum expenditure on its production. Economic costs associated with the prices of services, the amount of resources used. The best result will be when increasing output with reduced costs. The main indicators are technological and production costs. To reduce them leads:
- improvement of working conditions;
- transition to automated systems;
- staff stimulation;
- use of quality resources.
Types of production costs
There are several classifications of expenses. Russian marketers allocate fixed and variable. The first does not depend on the volume of output. These are premises for rent, remuneration of managers and managers, obligations to pay contributions to various funds.
Variables include the cost of purchasing raw materials, electricity and labor professionals. A similar view is susceptible to changes in the volume of the product being created. If the company begins to be engaged in production, the costs grow more actively compared to the pace of work performed. When the company enters an intense pace, the variables start to grow less actively. Both types add up to general expenses and are taken into account when assessing the profitability of a company.
Private and public
If we consider the costs from the point of view of a separate manufacturer, we can talk about private costs. When public opinion is taken into account in the analysis, external effects are formed. The latter can be positive (for example, training costs) and negative (compensation for damages).Public and private types are the same, if there are no external effects.
They are based on the concept of missed opportunity costs. For her expenses are defined as the value of other goods. They could be extracted on condition of more favorable use of a specific resource. They are defined as payments that the company is not going to make. These include loss of income due to the rejection of one economic activity in favor of another.
Alternative views are determined by:
- the cash income that the resource provider donates to its own production;
- the cost of the acquisition and use of raw materials;
- income that you need to provide the supplier to eliminate the possibility of alternative use of resources.
For this species, the consideration of temporal factors is important.
Accounting and economic
Under the accounting costs refers to the amount of payments that were made by the company for the purchase of resources. The exact size of this indicator allows you to establish the profitability of the company.
Economic costs include payments that the firm must make, as well as income received from suppliers of raw materials. They are associated with the refusal to manufacture alternative products.
The concept of costs in the short and long term
Short-term is considered the length of time during which one group of factors is constant, and the other is unstable. In the long run, all production conditions are variable. Any company in the future can change the size of the area of production workshops, fully update the technical base, adjust the staff of the enterprise. Therefore, when planning a long-term business, a thorough analysis of all costs is carried out, the dynamics of expenses are compiled.
The company can organize a different scale production. Into attention are taken:
- market performance;
- projected demand;
- cost of equipment used.
If products are not in high demand or are specific, small production is created. In this case, the average costs will be lower than for large batches of output. If, when assessing the market, serious demand is revealed, then large-scale production is organized. It will have the lowest fixed and variable costs.
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