Production costs - the costs of a manufacturer or owner of a firm associated with the acquisition and use of various factors of production. Thanks to them, there is an improvement in working conditions, modernization of outdated equipment.
Production costs serve as the basis for calculating financial indicators. It is a monetary expression of the use of production factors necessary to create a good. They act as the main limiter of income and the main factor affecting the volume of the product produced. In accounting, they are displayed as a cost estimate of resources, fuel, materials used in production. Such costs are less than the cost of the goods by the amount of profit.
Production cost functions
The functions show the dependence of the volume of products produced and the minimum expenditures for its production. Economic costs are associated with the prices of services, the amount of resources used. The best result will be when increasing output with decreasing costs. The main indicators are technological and production costs. The following leads to their decrease:
- improving working conditions;
- transition to automated systems;
- staff stimulation;
- use of quality resources.
Types of production costs
There are several classifications of expenses. Russian marketers distinguish constants and variables. The former do not depend on the volume of products manufactured. These are the lease of premises, the remuneration of managers and managers, the obligation to pay contributions to various funds.
Variables include the cost of purchasing raw materials, electricity and labor costs. This type is susceptible to changes in the volume of the product being created. If a company starts to engage in production, then costs grow more actively in comparison with the pace of work performed. When the company goes into intensive turnover, the variable indicators begin to grow less actively. Both types add up to general expenses and are taken into account when assessing the company's profitability.
Private and public
If we look at costs from the perspective of an individual producer, we can talk about private costs. When public opinion is taken into account in the analysis, externalities are generated. The latter can be positive (for example, training costs) and negative (compensation for damages). Public and private views are the same if there are no externalities.
Alternative
They are based on the concept of missed opportunity costs. According to it, costs are determined as the value of other goods. They could be extracted subject to a more profitable use of a particular resource. They are understood as payments that the company is not going to make. These include the loss of income due to the abandonment of one economic activity in favor of another.
Alternative views are defined:
- monetary income that the resource supplier donates for its own production;
- the cost of purchasing and using raw materials;
- the income that must be provided to the supplier to exclude the possibility of alternative use of resources.
For this variety, taking into account temporary factors is important.
Accounting and economic
Accounting costs are understood as the amount of payments that were made by the enterprise for the purchase of resources. The exact size of this indicator allows you to establish the profitability of the company.
Economic costs include payments that the firm must necessarily make, as well as revenues from suppliers of raw materials. They are associated with the refusal to manufacture alternative products.
The concept of costs in the short and long term
A short-term period is considered to be a period of time during which one group of factors is constant and the other is unstable. In the long run, all production conditions are variable. In the future, any company can change the size of the area of production workshops, completely update the technical base, and adjust the staff of the enterprise. Therefore, when planning a long-term business, a thorough analysis of all costs is carried out, and the dynamics of costs is compiled.
The enterprise can organize production of different scales. Taken into account:
- market indicators;
- projected demand;
- the cost of the equipment used.
If the product is not in great demand or is specific, small production is created. In this case, the average costs will be lower than with large production batches. If, when assessing the market, a serious demand is revealed, then a large production is organized. It will have the lowest fixed and variable costs.
