Production Costs and their Classification

Production costs and profit.

Under the cost of production is understood the cost of creating the goods. Expenses include raw material costs, employee salaries, depreciation, and other expenses related to the activities of the enterprise. As a result of selling its products, the company receives revenue. Part of the proceeds compensates for production costs, and the other is net profit. This means that they should be less than the cost of the goods produced by the amount of net profit. There are costs of production and circulation. The first include the costs associated with the material existence of the product. And the second arise in connection with the sale of the products produced by the enterprise. They include net and additional costs of circulation. Net - this is the cost of renting commercial space, advertising, revenue accounting. Additional arise in connection with transportation, warehousing, storage and packaging of products.

Production costs and their classification.

There are clear and not obvious alternative costs. The use of productive resources accounts for most of them. Resources have the properties of rarity and limitation, that is, if they are used for one purpose, they can not be used for others. So, for example, having spent money on the purchase of cement, you can not use them in the future to purchase gravel. Alternative costs are considered from the point of view of the lost possibility of using resources in another sphere. These include payments to employees working at the firm, owners of natural resources, investors. These payments are made in order to attract factors of production, diverting from an alternative application. Clear costs are understood as alternative costs, expressed in the form of cash payments. Among the obvious are: wages, payment of raw materials, payment of transportation costs , utility payments, payment for bank services.

Implicit understand the unpaid costs, otherwise the alternative costs of using the organization's own resources.

Production costs and their classification.

There is a division of costs into economic and accounting. Economic - these are costs that include normal or average profit. These include the costs of the firm, subject to a better economic decision on the expenditure of resources, that is, what should ideally be and what the enterprise should strive for. Accounting, unlike economic, does not include the cost of production factors owned by business owners.

Production costs and their classification.

Internal costs arise in connection with the use of own products, which turns into a resource for further production of goods by the firm. External represent the cost of money for the acquisition of resources that are not owned by the enterprise.

Production costs and their classification.

Constant costs arise regardless of the volume of output in the short term. They arise because of the existence of production equipment and must be paid under any conditions, even if the firm does not produce the goods. They can be avoided only by stopping the activities of the company. If they can not be avoided even in this case, then they are called irrecoverable.

Variable costs are expenses that depend on the volume of output of the enterprise's goods. This is the cost of raw materials, energy, fuel, transportation services, etc. The bulk of these costs fall to materials of production.

Limit - associated with the production of additional units of production.