Common costs as an element of planning

Perhaps everyone, counting a trifle in his pocket, wondered - where do the money go? Moreover, this issue is relevant for the top management of large manufacturing companies. After all, somebody, and businessmen always differed in the ability to count money. So, in order not to "fly out into the pipe", it would not hurt to get acquainted with such a concept as "common costs".

The second edition of the modern economic dictionary gives the following elegantly brief treatment of the above term: "total costs are a set of fixed and variable costs."

That is, if for a purely private person the issue of costs for the purchase of products in a store is extremely important, then for firms and companies this problem becomes somewhat more complicated, since it is necessary to take into account a greater number of factors influencing costs than the store assortment. Appear such items of costs as the cost of raw materials, payment of wages, taxes, transport costs, etc.

As can be seen from the definition, economists generally share the common costs for fixed and variable. This approach simplifies the task of estimating costs. After all, everything that is complex consists of simple things. And now let's try to deal with these constant and variable costs.

If you have extra money, feel free to call it capital and invest in production. Of course, new and modern equipment is bought, if possible, that can bring profit to the owner. The amount of the amount invested in the equipment will never change, it is constant. In addition, fixed costs include the costs of using buildings and structures, for major repairs and leases, the cost of administrative expenses is also included here. In the short term, regardless of the volume of production, the value of this type of cost does not change.

The volume of variable costs, on the contrary, directly depends on the volume and dynamics of production. In other words, an increase in the volume of output leads to an increase in the costs of its production and sale. The cost of raw materials, auxiliary materials, electricity and wages are attributed to this type of costs. Naturally, the general variable costs require due attention, as it is not expedient to stop the production process, for example, due to the banal absence of bolts, the purchase costs of which were not planned for the design process.

Combined in the article "total costs", fixed and variable costs are taken into account when calculating the total cost of the project, which is necessary for the preparation of project documentation and various business plans. By the way, almost always you need to be ready to increase the total costs, especially if we are dealing with a new project that has not been tested before, and, accordingly, we do not know how profitable it will be and pay back.

An example can serve as government programs for economic development in the regions that have an economic need. For example, when exporting raw materials from colonized territories in India, the infrastructure of the whole country was developed. As a result, the effectiveness of this project at the very beginning of its implementation was not high. But, in the future, it made a huge profit.

Common costs can also be taken into account when implementing projects that are politically motivated. Although, where politics begins, business ends. During the Soviet Union, for example, a huge number of industries abroad were built, which gave a dubious profit to the producer. For example, in China, more than 1,500 industries have been built, with a solid material base for components, etc. In the Union. The total costs for the construction and commissioning of these projects are close to astronomical figures, whether they paid for themselves or not, is still unknown.