Fixed costs

Every enterprise, irrespective of its size, uses certain resources in the course of economic and financial activity: labor, material, financial. These consumable resources are the costs of production. They are divided into fixed costs and variables. Without them, it is impossible to carry out economic activities and profit. Separation into variable and constant costs allow you to competently and efficiently make the most optimal management decisions, which contributes to the profitability of the enterprise.

Constant costs are all types of resources directed at production and independent of its volume. They also do not depend on the number of services rendered or goods sold. These costs are almost always the same throughout the year. Even if the enterprise temporarily stops the production of products or ceases to provide services, these costs will not cease. It is possible to allocate such constant expenses intrinsic to almost any enterprise:

- wages of permanent employees (salaries);

- deduction for social insurance;

- rent, leasing;

- tax deductions for the property of the enterprise;

- payment for services of various organizations (communications, security, advertising);

- depreciation deductions calculated on a straight-line basis.

Such expenses will always exist as long as the enterprise carries out its economic and financial activities. They are regardless of whether they receive income or not.

Variable costs are the costs of the enterprise, which vary in proportion to the volume of the output produced. They are directly related to production volumes. The main items of variable costs are:

- materials and raw materials necessary for production;

- piece-rate wages (at tariff rates), interest payments to sales agents;

- the cost of goods purchased from other enterprises for resale.

The main meaning of variable costs is that when an enterprise has an income, it is possible that they arise. From the income the enterprise spends a part of money resources for purchase of raw materials, materials, the goods. At the same time, the money spent is transformed into liquid assets in the warehouse. Interest paid to agents is also paid by the enterprise only from the income received.

This division into fixed costs and variables is necessary for full-fledged business management. It is used to calculate the "breakeven point" of the enterprise. The lower the fixed costs, the lower it is. Reducing the proportion of such costs drastically reduces entrepreneurial risk.

The division of costs into fixed and variable is widely used in the theory of microeconomics. It is also used to calculate the cost of production, to determine the proportion of specific types of costs, since the company benefits from reducing fixed costs. The increase in production reduces a portion of the fixed costs that are included in the unit cost of production, thereby increasing the profitability of production. This increase in profits is due to the so-called "economies of scale", that is, the more manufactured goods are produced, the less is its cost.

In practice, too, such a concept as conditional-fixed costs is often used. They represent the type of costs that is present during idle time, but their value can be changed depending on the period of time chosen by the enterprise. This type of expenditure intersects with indirect or overhead costs that accompany the main production, but are not directly related to it.