Timely accounting of the total costs of the company will allow you to constantly keep your finger on the pulse of events and save you from unnecessary debts and problems. How do you calculate the total costs of a company?
Instructions
Step 1
To find the total cost, you need to find variable costs, which are denoted as VC (from English variable cost) and fixed costs, denoted by FC (from English fiхed cost). When producing products, some of the costs of the firm are constant, while others are variable. And the company's total costs will include both fixed and variable costs.
Step 2
To find fixed costs, it is necessary to calculate the costs of the company for the maintenance of buildings, office premises, management salaries, taxes, capital repairs, interest on loans and insurance payments. These costs are considered constant, because their value does not depend on the increase or decrease in production in the short run. Even when a company's production facilities are in a downtime phase, there are fixed costs. But fixed costs can still change when the prices of fixed resources change (for example, higher taxes, rents, higher insurance premiums, and higher loan rates).
Step 3
Find the variable costs, the amount of which changes depending on the increase or decrease in the volume of production. Costs of this type include costs of raw materials, electricity, costs of auxiliary materials, hired labor of workers. Unlike fixed costs, which depend on changes in output in the short run, variable costs increase or decrease in direct proportion to output. If the output is zero, then the variable costs will be zero. In order to produce nothing, nothing is required. The value of variable costs is influenced by the price of variable resources.
Step 4
To find the total costs, it is necessary to find the sum of the obtained values of the fixed and variable costs of the company, which is not difficult to do, armed with a calculator.
