Variable costs are one of the types of total costs, the volume of which depends on the volume of products produced. The key sign of attributing costs to variables is their absence when production stops.
It is necessary
Information about the volume of production of the enterprise, directions and volumes of costs
Instructions
Step 1
Variable costs are direct and indirect. Direct costs can be directly attributed to the cost of production. The main direct variable costs are raw materials costs; the cost of electricity and fuel that is consumed in the production process; the cost of wages of workers involved in the production process.
Step 2
Indirect costs due to the technological features of production cannot be directly attributed to the products produced. As an example, we can single out raw material costs in complex production. Thus, in the process of milk separation, skim milk and cream are obtained at the same time. It is possible to divide the cost of milk for these two types of products only in an indirect way.
Step 3
Direct variable costs for raw materials include all material costs purchased externally. Their list varies depending on the industry. These variable costs increase in proportion to the increase in production. For example, with an increase in output by 10%, the consumption of materials will increase by the same amount. However, an increase in production can be achieved while maintaining the current volume of variable costs by reducing the material consumption of production.
Step 4
Personnel costs can be simultaneously attributed to direct and indirect, depending on the type of activity of the enterprise. If we are talking about production personnel, then this will be a direct cost. So, in an organization that is engaged in freight transportation, the salary of drivers will refer to direct costs, while in a wholesale company with its own logistics and distribution department - to indirect costs. Variable personnel costs appear with piecework wages, i.e. when the salary of employees directly depends on the volume of work performed by them. An increase in production can lead to a proportionate increase in variable personnel costs, for example, with an increase in staff. But it happens that costs grow faster than the rate of release. For example, with the introduction of a night shift in production, the salary of employees becomes higher.
Step 5
The attribution of depreciation to variable costs is possible only if it is accrued on a production basis, depending on the number of units produced. With this approach, it can easily be attributed to the cost of the product. When depreciation is accrued in equal installments, it refers to fixed costs.
Step 6
Electricity costs can be classified as mixed costs. If we are talking about the consumption of electricity by production equipment, then they can be attributed to variable, and the cost of lighting administrative and industrial buildings - to constant.
Step 7
In trading activities, variable costs include sales commissions, as well as the quantity of products purchased for resale.
