/ Variable costs: example. Types of production costs

Variable costs: an example. Types of production costs

The costs of the enterprise can be considered inanalysis from different points of view. Their classification is based on various characteristics. From the position of the effect of the turnover of production on costs, they can be dependent or independent of the increase in sales. Variable costs, the example of which requires careful consideration, allow the head of the company to manage them by increasing or decreasing the sales of finished products. Therefore, they are so important for understanding the correct organization of the activities of any enterprise.

general characteristics

The variable costs of a company (Variable Cost, VC) are those costs of the organization that change with increasing or decreasing growth in the sales of products.

Variable Costs Example
For example, if the company stops operating,Variable costs must be zero. The enterprise, in order to carry out its activities efficiently, will need to regularly evaluate the indicator of its costs. After all, they affect the size of the cost of finished products and turnover.

Such variable items include such items.

  • The book value of raw materials, energy resources, materials that take a direct part in the production of finished products.
  • Cost of manufactured products.
  • Salary of employees, depending on the fulfillment of the plan.
  • Interest from the activities of sales managers.
  • Taxes: VAT, collection on USN, UST.

Understanding variable costs

Чтобы правильно осознать такое понятие, как variable costs, an example of their definition should be considered in more detail. Thus, production in the process of carrying out its production programs spends a certain amount of materials from which the final products will be manufactured.

Efficiency of the enterprise
These costs can be attributed to variable directcosts. But some of them should be divided. Such a factor as electricity can be attributed to constant costs. If the cost of lighting the territory is taken into account, then they should be attributed to this category. Electric power, directly involved in the process of manufacturing products, is in the short run to variable costs.

There are also costs that depend on turnover,but not directly proportional to the production process. This trend may be caused by insufficient workload (or excess) of production, a mismatch of its design capacity.

Therefore, in order to measure the efficiencyactivity of the enterprise in the sphere of managing its costs, variable costs should be considered as being subject to a linear schedule on a segment of normal production capacity.

Classification

Variable costs of the firm

There are several types of classification of variable costs. With the change in costs from sales, the following are distinguished:

  • proportional costs, which increase in exactly the same way as production;
  • progressive costs, increasing at a faster pace than sales;
  • degressive costs, which with increasing production rates increase at a slower rate.

According to statistics statistics, the variable costs of a firm can be:

  • General (Total Variable Cost, TVC), which are calculated for the entire product range;
  • average (AVC, Average Variable Cost), calculated per unit of product.

According to the method of accounting in the cost of finished products distinguish variable costs direct (they are simply attributed to the cost) and indirect (it is difficult to measure their contribution to the cost).

Regarding the technological output, they can be production (fuel, raw materials, energy, etc.) and non-production (transportation, interest to the intermediary, etc.).

Total variable costs

The output function is similar to variablecosts. It is continuous. When for the analysis all costs are brought together, the total variable costs for all products of one enterprise are obtained.

Variable costs

When common variables and constants are combinedcosts, it turns out their total amount in the enterprise. This calculation is carried out in order to reveal the dependence of variable costs on the volume of production. Further, according to the formula, the variable marginal costs are found:

MS = ΔVC / ΔQ, where:

  • MC - marginal variable costs;
  • ΔVC - increase in variable costs;
  • ΔQ is the increase in output.

This dependence allows you to calculate the impact of variable costs on the overall result of sales of products.

Calculation of average costs

Average variable costs (AVC) isspent on a unit of production resources of the company. In a certain range, the growth of production has no effect on them. But when they reach the estimated capacity, they begin to increase. This behavior of the factor is explained by the heterogeneity of costs and their increase with large scale production.

The presented figure is calculated as follows:

AVC = VC / Q, where:

  • VC - the number of variable costs;
  • Q - the number of output.

Measurement parameters average variablescosts in the short run are similar to changes in average total costs. The greater the output of finished products, the more the total costs begin to correspond to the growth of variable costs.

Calculation of variable costs

Based on the above, you can define a variable cost (VC) formula:

  • VC = Costs of materials + Raw materials + Fuel + Electricity + Bonus salary + Percentage of sales to agents.
  • VC = Gross profit - fixed costs.

The sum of variable and fixed costs is equal to the total costs of the organization.

Variable costs, an example of the calculation of which was presented above, are involved in the formation of their overall indicator:

Total Costs = Variable Costs + Fixed Costs.

Definition example

Marginal variable costs

To gain a deeper understanding of the principle of calculating variable costs, consider an example from calculations. For example, a company characterizes its output with the following items:

  • The cost of materials and raw materials.
  • Energy costs of production.
  • Salary of workers producing products.

It is argued that variable costs increase in direct proportion with the increase in sales of finished products. This fact is taken into account to determine the break-even point.

For example, it was calculated that the pointbreak-even amounted to 30 thousand units. If you build a graph, the level of break-even production will be zero. If the volume is reduced, the company's activity will move to the plane of loss. And similarly, with an increase in production volumes, an organization will be able to get a positive result of net profit.

How to reduce variable costs

To increase the efficiency of the enterprise can use the strategy of "economies of scale", which manifests itself with an increase in production volumes.

The reasons for its appearance is the following.

  1. Using the achievements of science and technology, research, which improves the manufacturability of production.
  2. Reducing the salary costs of managers.
  3. Narrow specialization of production that allows you to perform each stage of production tasks with higher quality. This reduces the percentage of marriage.
  4. The introduction of technologically similar production lines that will provide additional capacity utilization.

Variable costs in the short run

At the same time, the growth rate of variable costs is observed below sales growth. This will increase the efficiency of the company.

Familiarized with the concept of variablesCosts, an example of the calculation of which was given in this article, financial analysts and managers can develop a number of ways to reduce the total production costs and reduce production costs. This will provide an opportunity to effectively manage the rate of turnover of the company's products.