Constant and variable costs include ... What variable costs include on the balance sheet

All costs of the enterprise are divided into variables and constants. Their main difference is that some change with an increase in the production volume, while others do not. However, fixed and variable costs include costs related to the release of products and their implementation. When the production activity ceases, a part of the expenses is lost and becomes zero. Consider that the variable costs include. An example of costs will also be given in the article.

Composition of expenditures

Variable costs include:

1. Commercial expenses (sales percentages to sales managers and other fees, as well as% paid to outsourcing companies).
2. The cost price of the released goods.
3. Salary of working personnel (part of the salary, which depends on the implemented standards).
4. The cost of fuel, raw materials, materials, electricity and other resources involved in production activities.

Variable costs include also some taxes: VAT, excises, deductions for USN, UST with premiums.

Purpose of calculation

Behind every coefficient, indicator or concept it is necessary to see their economic meaning. If we talk about the objectives of the enterprise, then, in general, two: reducing costs or increasing income. When these concepts are generalized, the profitability (profitability) of the company arises. The higher this figure, the more firm the financial position of the firm, there will be more opportunities to attract additional borrowed funds, to expand technical and production capacities. The enterprise in this case can increase its own value in the market, increase investment attractiveness. Division of expenses of the enterprise is applied in the administrative account. Managers need to know that variable costs include. The lines on which this group of expenses are reflected are not in the financial statements. Determining the value of these costs in the overall structure allows you to analyze the company's activities. Management, knowing that variable costs include, in the balance of costs and revenues, gets the opportunity to consider different management strategies to increase the company's profitability.

Production and sales volume

To better understand what variable costs include, you should consider their separation depending on one or other of the characteristics. In terms of production and sales, there are:

1. Proportional expenses. The calculation uses the coefficient of elasticity 1. The increase in variable costs is directly proportional to the increase in production volume. For example, the latter grew by 30%, respectively, the costs will increase by the same amount.
2. Progressive costs. Coefficient here> 1. Variable costs are highly sensitive to changes in the volume of output of goods. If it increases, the costs will be relatively higher. For example, the volume increased by 30%, and costs - by 50%.
3. Degressive expenses. The coefficient for them is <1. In the case of an increase in the production volume, expenditures are reduced. This phenomenon is referred to as a "scale effect" or "mass production effect". For example, the volume of output increased by 30%, and costs - only 15%.

How to reduce costs?

As one of the options to reduce variable costs is the use of "economies of scale". It appears with an increase in the production volume and the transition from mass production to mass production. According to the graph of the "scale effect," it is evident that with a rise in the output size, a certain point is reached. In it, the relationship between the amount of expenditure and the production volume becomes nonlinear. At the same time, the rate at which the variable costs change is lower than the intensity of growth in the release / sale of the goods. The reasons for the appearance of this effect include:

1. Reducing the cost of management personnel.
2. Application of scientific developments in the improvement of technology.
3. Narrowing the specialization of products. When focusing the production complex on the implementation of a number of specific tasks, the quality of work increases and the amount of rejects is reduced.
4. The release of a similar product on the technological chain, additional capacity utilization.

Static metric

On this basis, expenses are divided into:

1. Are common.
2. Medium.

General variable costs include all expenses related to this category for the entire range of goods. The average cost of 1 unit. Products or a group of products.

Financial Accounting

Carrying out the account, allocate:

1. Direct costs. Such variable costs include costs that can be attributed to the cost of goods. These include the cost of materials, energy, raw materials, wages, fuel and so on.
2. Indirect costs. They depend on the production volume, therefore their contribution to the cost price is difficult to estimate. This situation, for example, occurs when the milk is divided into cream and skimmed products during the manufacturing process.

Attitude to the process

According to this criterion, the variable costs of the production and non-production types are singled out. The former relate to the process of output directly. Such variable costs include the costs of materials, raw materials, energy, fuel resources, workers' wages and so on. Non-production costs are not directly related to output. These include, for example, transportation costs, commission to agents and other managerial and commercial costs.

Calculation

The formula looks like this:

- Variable costs = Cost of raw materials + materials + fuel + electricity + premiums to w / n +% of sales.

Also, the indicator can be calculated as follows:

- Variable costs = gross (marginal) profit - fixed costs.

Breakeven point

Consider the role of variable costs in determining it. The break-even point directly depends on these costs. When the company reaches a certain production volume, a moment of equilibrium sets in. At this point, the amount of losses and profits is the same. Net income in this case is 0, and marginal - constant costs. This point indicates the minimum critical production level at which the enterprise is considered cost-effective. The task of the company is to create a security zone and create a level of output and sales of products that would ensure maximum distance from the break-even point. What the enterprise will be further from this point, the higher its financial stability, profitability, competitiveness. With increasing variable costs, this point shifts.

An Important Moment

The model discussed above usually operates with linear relationships between production volume and profit / expenses. In practice, these dependencies are often nonlinear. This situation is due to the fact that the size of output is affected by a number of factors. They include:

• Seasonality of demand.
• Applied technologies.
• Activity of competitors.
• Taxes.
• Macroeconomic indicators.
• "The effect of scale."
• Subsidies and stuff.

To ensure the accuracy of the model, it needs to be applied in the short term relative to products with sustainable demand.