Variable and fixed costs of the enterprise in examples and explanations. Fixed and variable costs

Finance

Variable costs include the cost of... What costs are variable costs?

As part of the costs of any enterprise, there are so-called forced costs. They are associated with the acquisition or use of different means of production.

Cost classification

All costs of the enterprise are divided into variable and fixed. The latter include payments that do not affect the volume of output. Accordingly, we can say . Among them, in particular, the cost of renting premises, management costs, payment for risk insurance services, payment of interest for the use of credit funds, etc.

What costs are variable costs? This category of costs includes payments that directly affect the volume of production. Variable costs include the cost of raw materials and materials, remuneration of personnel, purchase of packaging, logistics, etc.

fixed costs always exist throughout the life of the business. Variable costs, in turn, when stopped production process missing.

Such a classification is used to determine the company's development strategy over a certain period.

In the long run, all types of costs can treat variable costs. This is due to the fact that all of them to some extent affect the volume of output. finished products and extracting profit from the production process.

Cost value

In a relatively short period, the enterprise will not be able to radically change the way goods are produced, the parameters of capacities, or start the production of alternative products. However, during this time it is possible to adjust the indexes of variable costs. This, in fact, is the essence of cost analysis. The manager, by adjusting individual parameters, changes the volume of production.

It is impossible to significantly increase the amount of output by adjusting this index. The fact is that at a certain stage of increasing only those costs that will not lead to a significant jump in growth rates, part of the fixed costs must also be adjusted. In this case, you can rent additional production space, launch another line, etc.

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Types of variable costs

All costs that are classified as variable costs. are divided into several groups:

• Specific. This category includes costs that arise after the creation and sale of one unit of goods.
• Conditional. TO conditionally variable costs include all costs that are directly proportional to the current amount of output.
• Average variables. This group includes the average values ​​of unit costs taken over a certain period of time of the enterprise.
• Direct variables. This type of cost is related to the production of a particular type of product.
• Limit variables. These include the costs incurred by the enterprise with the release of each additional unit of goods.

Material costs

Variable expenses include costs included in the cost of the final (finished) product. They represent the value of:

• Raw materials/materials obtained from third party suppliers. These materials or raw materials must be used directly in the production of products or be part of the components needed to create them.
• Works/services provided by other business entities. For example, the enterprise used a control system supplied by a third-party organization, the services of a repair team, etc.

implementation costs

TO variables include costs for logistics. We are talking, in particular, about transportation costs, costs for accounting, movement, write-off of valuables, costs for the delivery of finished products to the warehouses of trade enterprises, to points retail etc.

Depreciation deductions

As you know, any equipment used in the production process wears out over time. Accordingly, its effectiveness is reduced. To avoid negative impact moral or physical deterioration of equipment in the production process, the company transfers a certain amount to a special account. These funds at the end of their service life can be used to upgrade obsolete equipment or purchase new ones.

The deduction is carried out in accordance with the depreciation rates. The calculation is made on the basis of the book value of fixed assets.

The depreciation amount is included in the cost of finished products.

Remuneration of staff

Variable expenses include not only the direct earnings of employees of the enterprise. They also include all mandatory deductions and contributions established by law (amounts in the Pension Fund of the Russian Federation, the Compulsory Medical Insurance Fund, personal income tax).

Calculation

A simple summation method is used to determine the amount of costs. It is necessary to add up all the costs incurred by the enterprise during a certain time. For example, the firm spent:

• 35 thousand rubles on materials and raw materials for production.
• 20 thousand rubles - for the purchase of containers and logistics.
• 100 thousand rubles - to pay salaries to employees.

Adding the indicators, we find the total amount of variable costs - 155 thousand rubles. Based on this value and the volume of production, you can find their specific share in the cost.

Let's say an enterprise has produced 500 thousand products. unit costs will be:

155 thousand rubles / 500 thousand units = 0.31 rub.

If the company produced 100 thousand more goods, then the share of expenses will decrease:

155 thousand rubles / 600 thousand units = 0.26 rubles.

Break even

This is very important indicator for planning. It represents the state of the enterprise in which the output is carried out without loss to the company. This state is ensured by a balance of variable and fixed costs.

The break-even point must be determined at the planning stage of the production process. This is necessary so that the management of the enterprise knows what the minimum amount of production needs to be produced in order to pay off all costs.

Let's take the data from the previous example with a few additions. Suppose the amount of fixed costs is 40 thousand rubles, and the estimated cost of a unit of goods is 1.5 rubles.

The value of all costs will be - 40 + 155 = 195 thousand rubles.

The break-even point is calculated as follows:

195 thousand rubles / (1.5 - 0.31) = 163,870.

That is how many units of production the enterprise must produce and sell to cover all costs, i.e., to reach "zero".

Variable expense rate

It is determined by indicators of estimated profit when adjusting the amount of production costs. For example, when new equipment is put into operation, the need for the previous number of employees will disappear. Accordingly, the volume of the wage fund may be reduced due to a decrease in their number.

Financial planning is the search for the most profitable ways for the development and further functioning of the organization. As part of planning, the efficiency of investment, production and financial activities is also predicted. Therefore, for any enterprise, drawing up a plan of expenses and incomes allows not only to obtain data on the cost of production and profitability, but also to find out comprehensive information about the development of the organization in a certain direction.

Qualitative analysis requires an objective assessment of costs based on changing production volumes. As a rule, the main types of expenses include the costs of an enterprise of a variable and fixed type. So what are fixed and variable costs, what is included there and what is their relationship?

Variable costs are expenses that change based on an increase or decrease in sales activity and production volumes. In addition to direct costs, variables may include the financial costs of acquiring tools, necessary materials and raw materials. When converted to a commodity unit, variable costs remain stable, regardless of fluctuations in production volumes.

What are the variable costs of production?

Fixed cost type: what is it?

Fixed costs in business are those costs that a firm incurs even if it does not sell anything. In addition, it is worth remembering that when recalculated per commodity unit given type costs change in proportion to the increase or decrease in production volumes.

Fixed costs include:

Interdependence of production costs

The relationship of variable costs with fixed costs is an important indicator. Their interdependence in relation to each other is the break-even point of the organization, which consists in, which the enterprise needs to do in order to be considered profitable and have costs equal to zero, that is, absolutely covered by the company's income.

The break-even point is determined by a simple algorithm:

Break-even point = fixed costs / (the cost of one unit of goods - variable costs per unit of goods).

As a result, it is easy to see that it is required to manufacture products of such a production volume and at such a cost that it can cover fixed costs that remain unchanged.

Conditional classification of production costs

In fact, it is quite difficult to draw a clear line between variable and fixed costs with some certainty. If production costs change regularly during the operation of the enterprise, it is recommended to consider them as semi-fixed and semi-variable costs. Do not forget that almost every type of cost has elements of certain costs. For example, when paying for the Internet and telephony, you can find out the fixed share of the required costs (monthly service package) and the variable share (payment depending on the duration of long-distance calls and minutes spent in mobile communications).

Examples of basic expenses of a conditionally variable type:

1. Variable type costs in the form of components, necessary materials or raw materials, in the manufacture finished products are defined as conditionally variable costs. The fluctuation of these costs is possible due to an increase or decrease in prices, changes technological process or reorganization of the production itself.
2. Variable costs relating to piecework direct wages. Such costs change in quantitative terms and due to fluctuations wages with growth or daily norms, as well as when updating the incentive share of payments.
3. Variable costs, including a percentage of sales managers. These costs are always in flux, as the amount of payments depends on the activity of sales.

Examples of basic expenses of a conditionally fixed type:

1. Fixed-type expenses for payments for renting space vary throughout the life of the organization. Costs can both rise and fall, depending on the increase or decrease in the rental value.
2. The salary of the accounting department is considered a fixed type of cost. Over time, the amount of labor costs may increase (which is interconnected with quantitative changes in the state and the expansion of production), or may decrease (when accounting is transferred to).
3. Fixed costs can change when they are moved to variables. For example, when an organization manufactures not only goods for sale, but also certain share component parts.
4. The amounts of tax deductions also vary. is able to grow due to the increase in the cost of space or due to changes in tax rates. The amount of other tax deductions that are considered fixed costs may also change. For example, the transfer of accounting to outsourcing does not imply the payment of a salary, respectively, and UST will not be required to be charged.

The above types of conditionally fixed and conditionally variable costs clearly demonstrate why these costs are considered conditional. During his work, the owner of the enterprise tries to influence the change in profits. For example, to reduce costs and increase profits, in the same period, the market and other external conditions also have a certain impact on the activities of the enterprise.

As a result, the costs regularly change under the influence of certain factors, taking the form of costs of a conditionally constant or conditionally variable type.

It is desirable to maintain a balance between costs from the very beginning of the enterprise. Remember, so that you do not need to apply for a loan or, you need to rationally approach the analysis of fixed and variable costs. Since it is he who allows you to build the most effective financial plan for the company.

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Which, in turn, form the cost - the most important of the indicators characterizing the efficiency of production. And since management decisions are mainly directed to the future, when organizing management accounting, enterprise managers need to apply cost classification.

Variable and fixed costs

There are two main types of costs, each of which is determined by whether the total costs change in response to volume fluctuations or not.

Variable costs include:
materials
Piecework wages for key workers
Payment for electricity for technological needs, commission
Fare
procurement costs
Royalty

Fixed costs remain the same regardless of the volume of production:
Rent
Communal payments
Payment for lighting and heating
Salaries of specialists and employees
Depreciation
Loan interest
Insurance

In some cases, it is difficult or impossible to determine which type of costs belong to. For example, for which period the costs are constant but eventually rise or fall. In such cases, we can talk about some intermediate stage.

Direct and indirect costs

Direct- these are the costs associated with the production of certain types of products, the cost of which they can be directly attributed. These are raw materials and basic materials, semi-finished products, wage production workers, electricity.

TO indirect include the costs associated with the production of product lines. For example, general shop expenses, general plant expenses, part of non-production expenses. They cannot be associated with this product or division.

Product costs and period costs

Period costs indicate the funds and resources spent in a certain production period (month, quarter). This includes administrative and selling expenses.

The cost of a product is determined by the cost of materials that make up the product, the labor associated with that particular product, and other costs associated with the manufacturing process (indirect costs).

The total cost of direct materials, direct labor and direct costs form the unit cost of production. And, added to them, the share of this unit in indirect costs or overhead costs, consisting of indirect materials, indirect labor and indirect costs, represent the total unit cost of production.

The concept of production cost is also used to estimate inventories, the cost of production and the purchase of a unit of inventory: it may include direct and indirect production costs, but not include costs of sale and general administrative expenses.

Capital expenditures

Detailed data is also needed here; the practice of total sums is unacceptable.
A list of specific projects should be compiled with an estimated total capital expenditure for each. The associated costs need to be assessed so that they do not fall out of their respective overhead budgets, such as the cost of additional software for purchased personal computers. Equipment that will need to be replaced, such as an existing telephone exchange with a more powerful one, must not be overlooked, otherwise the increased number of calls cannot be handled properly.
The months when suppliers will bill for each successive portion of capital expenditures should be set aside as a special part of the detailed budget. You might think that this is excessive detail, but it is not. The combination of the projected capital expenditure schedule and the business's disparate working capital needs throughout the year could exceed the company's borrowing capacity. The only way to avoid this is to plan capital expenditures monthly.
Every manager must understand that the inclusion of a project in an approved capital investment plan does not in any way automatically authorize costs. Most companies rightly require that a detailed feasibility study be submitted for approval for every capital investment project that exceeds a specified limit. On the other hand, it's ridiculous to tell a manager in the middle of a budget year that a project won't be authorized because it's not in the plan. Undoubtedly, if circumstances or priorities change, the proposed project should be approved, provided that some other items of capital expenditure of an equivalent amount are crossed out.

Cash budget

For many businesses, cash is more difficult to plan than profit. Even when actual sales month after month are in full accordance with the budget, there is no guarantee that buyers will pay the bills on the dates planned in the budget. Nevertheless, the cash budget, despite its inevitable inaccuracy, is the most important of all financial plans. Yet the annual cash budget is wholly insufficient unless further detailing is provided. The budget must be calculated month by month, because during the year there may be wide fluctuations in the size of the required overdraft.
Each cash item should be included, in particular:

• money received from buyers, based on the payment terms planned in the budget;
• interest payable or receivable;
• payments to suppliers - proceeding from the terms of payment planned in the budget from the moment of receipt of invoices;
• salaries and other staff costs, such as pensions and compulsory insurance contributions;
• monthly capital expenditures.

It is necessary to include quarterly, semi-annual and annual payments, in particular:

• rent and lease payments,
• local taxes,
• interim and final dividends,
• prepayment of corporation tax,
• corporate tax,
• insurance payments,
• premium payments.

Monthly budget breakdown

Obviously, preparing monthly cash budgets means that annual sales need to be planned monthly, as well as operating and capital expenditures. This monthly review is often referred to as scheduling or budget phasing.
The monthly sales calendar should be as accurate as possible. Many companies experience seasonal fluctuations in sales caused by a variety of factors. This must be taken into account. Luckily, history can be a reliable guide to your monthly sales plan breakdown.

A useful activity is to calculate the percentage of annual sales that occurred in each month for three years. recent years. The graphs may be similar enough to provide a reliable guide for the planned year.
Likewise, the planned annual profit should be spread out by month in order to know if the company is on track to achieve it or not; quarterly data do not give enough early warning on the decline in profits.

Other classifications

The methods described above do not exhaust the classification of costs. They can also be divided based on the following features:

By composition: actual and planned;
according to the degree of averaging: general, average;
by management functions: production, administrative, commercial;
by whether it can be excluded or not: removable, irremovable.

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Such a question may arise for a reader familiar with management accounting, which is based on accounting data, but pursues its own goals. It turns out that some methods and principles of management accounting can be used in ordinary accounting, thereby improving the quality of information provided to users. The author suggests that you familiarize yourself with one of the ways to manage costs in accounting, which will help the document on costing products.

About the direct costing system

In relation to production, a simple and developed direct costing is distinguished. When choosing the first option, the variables include direct material costs. All the rest are considered constant and are charged in total to complex accounts, and then, according to the results of the period, are excluded from the total income. This is the income from the sale of manufactured products, calculated as the difference between the cost of products sold (sales proceeds) and the variable cost. The second option is based on the fact that the conditionally variable costs, in addition to direct material costs, in some cases include variable indirect costs and a part of fixed costs that depend on the utilization rate of production capacities.

At the stage of implementation of this system at enterprises, as a rule, simple direct costing is used. And only after its successful implementation, the accountant can switch to a more complex developed direct costing. The goal is to increase the efficiency of the use of resources in production and economic activities and to maximize the income of the enterprise on this basis.

Direct costing (both simple and advanced) is distinguished by one feature: priority in planning, accounting, costing, analysis and cost control is given to the parameters of the short and medium term compared to taking into account and analyzing the results of past periods.

About the amount of coverage (margin income)

As you can see, the amount of coverage (marginal income), which is the difference between revenue and variable costs, shows the level of reimbursement of fixed costs and profit generation. If the fixed costs and the amount of coverage are equal, the profit of the enterprise is equal to zero, that is, the enterprise operates without loss.

The definition of production volumes that ensure the break-even operation of the enterprise is carried out using the “break-even model” or the establishment of a “break-even point” (also called the coverage point, the point of critical production volume). This model is built on the basis of the interdependence between the volume of production, variable and fixed costs.

The break-even point can be determined by calculation. To do this, you need to make several equations in which there is no profit indicator. In particular:

B = Post3 + Rem3 ;

c x O \u003d Post3 + peremS x O ;

Post3 = (c - AC) x O ;

PostZ - fixed costs;

PeremZ - variable costs for the entire volume of production (sales);

AC - variable costs per unit of output;

c - wholesale price of a unit of production (excluding VAT);

ABOUT - volume of production (sales);

md - the amount of coverage (marginal income) per unit of production.

Assume that for the period the variable costs ( PeremZ ) amounted to 500 thousand rubles, fixed costs ( PostZ ) are equal to 100 thousand rubles, and the volume of production is 400 tons. The definition of the break-even price includes the following financial indicators and calculations:

- c = (500 + 100) thousand rubles / 400 t = 1,500 RUB/t;

- AC = 500 thousand rubles. / 400 t = 1,250 RUB/t;

- md = 1,500 rubles. - 1 250 rubles. = 250 rubles;

- ABOUT = 100 thousand rubles. / (1,500 RUB/t - 1,250 RUB/t) = 100 thousand RUB / 250 rubles/t = 400 tons

The level of the critical selling price, below which a loss occurs (that is, it is impossible to sell), is calculated by the formula:

c \u003d PostZ / O + peremS

If we substitute the figures, the critical price will be 1.5 thousand rubles/t (100 thousand rubles / 400 tons + 1,250 rubles/t), which corresponds to the result obtained. It is important for an accountant to monitor the break-even level not only at the price of a unit of production, but also at the level of fixed costs. Their critical level, at which total costs (variables plus fixed) are equal to revenue, is calculated by the formula:

Post3 = O x md

If we substitute the numbers, then the upper limit of these costs is 100 thousand rubles. (250 rubles x 400 tons). The calculated data allow the accountant not only to track the break-even point, but also to a certain extent manage the indicators that affect it.

About variable and fixed costs

The amount of fixed costs for a certain time does not change in proportion to the change in the volume of production. If the volume of production increases, then the amount of fixed costs per unit of output decreases, and vice versa. But fixed costs are not completely fixed. For example, security costs are classified as fixed, but their amount will increase if the administration of the institution deems it necessary to increase the salary of security workers. This amount may decrease if the administration purchases such technical means, which will make it possible to reduce the number of security personnel, and savings on wages will cover the cost of acquiring these new technical means.

Some types of costs may include fixed and variable elements. An example is telephone expenses, which include a constant component in the form of long-distance and international telephone calls, but vary depending on the duration of calls, their urgency, etc.

The same types of costs can be classified as fixed and variable depending on specific conditions. For example, total amount repair costs may remain constant with an increase in production volumes - or increase if an increase in production requires the installation of additional equipment; remain unchanged with a reduction in production volumes, if no reduction in the equipment fleet is expected. Thus, it is necessary to develop a methodology for dividing the disputed costs into conditionally variable and conditionally fixed costs.

To do this, it is advisable for each type of independent (separate) costs to assess the growth rate of production volumes (in physical or value terms) and the growth rate of selected costs (in value terms). The assessment of comparative growth rates is made according to the criterion adopted by the accountant. For example, the ratio between the growth rate of costs and production volume in the amount of 0.5 can be considered as such: if the growth rate of costs is less than this criterion compared to the growth in production volume, then the costs are fixed, and in the opposite case, they are variable costs.

For clarity, we present a formula that can be used to compare the growth rates of costs and production volumes and classify costs as fixed:

Abi - the volume of output of i-products for the base period;

Zoi - i-type costs for the reporting period;

Zbi - i-type costs for the base period.

Suppose, in the previous period, the volume of production amounted to 10 thousand units, and in the current period - 14 thousand units. Classified costs for the repair and maintenance of equipment - 200 thousand rubles. and 220 thousand rubles. respectively. The specified ratio is fulfilled: 20 ((14 / 10 x 100% - 100) x 0.5)< 10 (220 / 200 x 100% - 100). Следовательно, по этим данным затраты могут считаться условно-постоянными.

The reader may ask what to do if, during a crisis, production does not grow, but declines. In this case, the above formula will take a different form:

Suppose that in the previous period the volume of production amounted to 14 thousand units, and in the current period - 10 thousand units. Classified costs for the repair and maintenance of equipment 230 thousand rubles. and 200 thousand rubles. respectively. The specified ratio is fulfilled: 20 ((14 / 10 x 100% - 100) x 0.5) > 15 (220 / 200 x 100% - 100). Therefore, according to these data, the costs can also be considered conditionally fixed. If costs have increased despite the decline in production, this also does not mean that they are variable. Just fixed costs have increased.

Accumulation and distribution of variable costs

The cost of work in progress and semi-finished products of own production is accounted for at variable costs. Moreover, complex raw materials, during the processing of which a number of products are obtained, also relate to direct costs, although it cannot be directly correlated with any one product. The following methods are used to allocate the cost of such raw materials to products:

The company introduces a simple direct costing in production, which results in the release of three types of products (No. 1, 2, 3). Variable costs - for basic and auxiliary materials, semi-finished products, as well as fuel and energy for technological purposes. In total, variable costs amounted to 500 thousand rubles. Products No. 1 produced 1 thousand units, the sale price of which is 200 thousand rubles, products No. 2 - 3 thousand units with a total selling price of 500 thousand rubles, products No. 3 - 2 thousand units with a total selling price of 300 thousand . rub.

Let us calculate the coefficients of distribution of costs in proportion to the selling prices (thousand rubles) and the natural indicator of output (thousand units). In particular, the first will amount to 20% (200 thousand rubles / ((200 + 500 + 300) thousand rubles)) for products No.   1, 50% (500 thousand rubles / ((200 + 500 + 300) thousand rubles)) for products No.   2, 30% (500 thousand rubles / ((200 + 500 + 300) thousand rubles)) for products No.   3. The second coefficient will take the following values: 17% (1 thousand units / ((1 + 3 + 2) thousand units)) for product No. 1, 50% (3 thousand units / ((1+3+2) thousand units)) for product No. 2 , 33% (2 thousand units / ((1 + 3 + 2) thousand units)) for product No. 2.

In the table, we will distribute the variable costs according to two options:

The options for the distribution of variable costs are different, and more objective, in the opinion of the author, is the assignment to one or another group in terms of quantitative output.

Accumulation and distribution of fixed costs

If only material costs are classified as variables, the accountant will have to determine the full cost of specific types of products, including variable and fixed costs. There are the following options for allocating fixed costs to specific products:

• in proportion to the variable cost, including direct material costs;
• in proportion to the shop cost, including variable cost and shop expenses;
• in proportion to special cost allocation ratios calculated on the basis of estimates of fixed costs;
• natural (weight) method, that is, in proportion to the weight of the products produced or other physical measurement;
• in proportion to the “sales prices” adopted by the enterprise (production) according to market monitoring data.

Determined according to the estimate for the planned period (year or month), the total amount of fixed costs and the total amount of expenses according to the distribution base (variable cost, shop cost or other base). Next, the coefficient of distribution of fixed costs is calculated, which reflects the ratio of the amount of fixed costs to the distribution base, according to the following formula:

Zp - fixed costs;

Zb - distribution base costs;

n , m - the number of items (types) of costs.

Let's use the conditions of example 1 and assume that the amount of fixed costs in the reporting period amounted to 1 million rubles. Variable costs are equal to 500 thousand rubles.

In this case, the distribution coefficient of fixed costs will be equal to 2 (1 million rubles / 500 thousand rubles). The total cost on the basis of the distribution of variable costs (for output) will be doubled for each type of product. Let's show the final results, taking into account the data of the previous example, in the table.

Similarly, the distribution coefficient is calculated to apply the method "in proportion to selling prices", but instead of the sum of the costs of the distribution base, it is necessary to determine the cost of each type of marketable product and all marketable products in the prices of possible sales for the period. Further, the overall distribution coefficient ( Cr ) is calculated as the ratio of total fixed costs to the cost of marketable products in prices of possible sale according to the formula:

p - the number of types of commercial products.

Let's use the conditions of example 1 and assume that the amount of fixed costs in the reporting period amounted to 1 million rubles. The cost of manufactured products No. 1, 2, 3 in selling prices is 200 thousand rubles, 500 thousand rubles. and 300 thousand rubles. respectively.

In this case, the distribution coefficient of fixed costs is 1 (1 million rubles / ((200 + 500 + 300) thousand rubles)). In fact, fixed costs will be distributed according to sales prices: 200 thousand rubles. for products No. 1, 500 thousand rubles. for products No. 2, 300 thousand rubles. - for products No. 3. In the table we show the result of the distribution of costs. Variable costs are allocated based on product sales prices.

Although the total total cost of all products in examples 2 and 3 is the same, for specific types this indicator differs and the task of the accountant is to choose a more objective and acceptable one.

In conclusion, we note that variable and fixed costs are somewhat similar to direct and indirect costs, with the difference that they can be more effectively controlled and managed. For these purposes, for manufacturing enterprises and their structural subdivisions, cost management centers (MC) and responsibility centers for cost formation (CO) are being created. The first calculates the costs that are collected in the second. At the same time, the responsibilities of both the CO and the CO include planning, coordination, analysis and cost control. If both there and there to allocate variable and fixed costs, this will allow them to be better managed. The question of the advisability of dividing expenses in this way, posed at the beginning of the article, is decided depending on how effectively they are controlled, which also implies monitoring the profit (breakeven) of the enterprise.

Order of the Ministry of Industry and Science of the Russian Federation dated July 10, 2003 No. 164, which amended the Methodological provisions for planning, accounting for the production and sale of products (works, services) and calculating the cost of products (works, services) at the enterprises of the chemical complex.

This method is used when the main product dominates and a small share of by-products is valued either by analogy with its costs in a separate production, or at the selling price minus the average profit.

The size of which depends on the intensity of production. Variable costs are the opposite fixed costs. The key feature by which variable costs are identified is their disappearance during the suspension of production.

What about variable costs?

Variable costs include the following:

• Piecework wages of workers tied to personal results.

• Expenses for the purchase of raw materials and components for production maintenance.

• Interest and bonuses paid to consultants and sales managers based on the results of the implementation of the plan.

• The amount of those taxes, the basis for the calculation of which are the volumes of production and sales. These are the following taxes: VAT, excises, according to the simplified tax system.

• Expenses for paying services to service organizations, for example, services for transporting goods or outsourcing sales.

• The cost of fuel and electricity consumed directly in the shops. The distinction is important here: the energy used in administrative buildings and offices are fixed costs.

Break-even point and types of variable costs

The value of VC varies in proportion to the size of the total costs. When determining the break-even point, it is assumed that variable costs proportional to the volume of production:

However, this is not always the case. An exception may be, for example, the introduction of a night shift. Since the night is higher, variable costs will increase at a faster rate than output. On this basis, there are three types of VC:

• Proportional.

• Regressive variables - costs increase at a slower rate than . This effect is known as the "scale effect".

• Progressive variables - the growth rate of costs is higher.

VC calculation

The classification of costs into fixed and variable is not used at all for accounting(there is no “variable costs” line in the balance sheet), but for management analysis. The calculation of variable costs is appropriate, because it gives the manager the opportunity to manage the profitability and profitability of the organization.

To determine the amount of variable costs, methods such as algebraic, statistical, graphical, regression-correlation and others are used. The most famous and widespread is the algebraic method, according to which the following formula can be used to determine the value of VC:

Algebraic analysis assumes that the research subject has such information as the volume of production in physical terms (X) and the size of the corresponding costs (Z), at least for two points of production.

Also often used margin method, based on the determination of the quantity marginal income, which is the difference between the profit of the organization and the total variable costs.

Breaking point: how to minimize variable costs?

A popular strategy for minimizing variable costs is to define " points fracture» - such a volume of production at which variable costs cease to increase proportionally and reduce the growth rate:

There may be several reasons for this effect. Among them:

1. 1. Reducing the cost of wages for management personnel.

1. 2. Application of a focusing strategy, which is to increase the specialization of production.

1. 4. Integration of innovative developments into the production process.

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