Timely accounting of the total cost of the company allows the head to constantly keep his finger on the pulse of economic and other events and will help to avoid unnecessary debts and problems. There are certain rules that apply to determine the costs of a firm.
Instructions
Step 1
To find the total cost, you need to determine fixed costs, denoted from the English fiхed cost as FC, and variable costs, which are usually denoted as VC (from English variable cost). When a product is released, some costs to the company are variable and others are constant. And the total cost of the firm includes both variable and fixed costs.
Step 2
To determine the amount of fixed costs, it is necessary to find and calculate the costs of the company for the maintenance of buildings, office premises, taxes, management salaries, capital repairs, insurance payments and interest on the loan. These costs are considered to be constant, because their value does not depend on the reduction or increase in production capacity in the short term. Even when a company's production is in a downtime phase, fixed costs need to be considered. But fixed costs can still change when the cost of fixed resources changes (for example, higher rents, taxes, higher loan rates and higher insurance premiums).
Step 3
Calculate the sum of variable costs, the amount of which changes depending on the decrease or increase in production. The costs of this type primarily include the cost of electricity, raw materials, costs of hired labor of workers, auxiliary materials. Unlike fixed costs, which are dependent on changes in output in the short run, variable costs decrease or increase in direct proportion to the production of goods. If output is zero, then variable costs are also zero. This can be explained as follows: if nothing is produced, nothing is required. The value of variable costs is mainly influenced by the cost of variable resources.
Step 4
To determine the amount of costs, it is necessary to add the obtained values of the company's fixed and variable costs, which is not difficult to do, armed with a calculator.
