Variable costs

For the purposes of control and planning of economic activity, the classification of costs of an enterprise by type of expenditure is used. The change in the volume of production of marketable products leads to a corresponding decrease or increase in the level of some of these types. Thus, variable costs always become different with changes in output. They include the cost of materials, raw materials, labor costs of the main employees of the enterprise, fuel and energy, intended for the process of production of marketable products.

All variable costs are a kind of company's expenses, the main feature of which is their complete disappearance when the production is suspended. Some people believe that such expenses grow only linearly (directly in proportion) with the growth in output and sales of products. This approach is based on the calculation of the "break-even point" of production, which assumes that variable costs necessarily increase in proportion to the growth in output.

The break-even point can be defined in terms of goods, in monetary terms, taking into account the expected profit. It represents the minimum income, upon receipt of which all production costs are fully paid off during the sale of products, but in this case the profit is absent. Calculate the break-even point, using information about all variables and fixed costs for output and volumes of its realization for a certain period of time:

Breakeven point = (Constant costs / (Revenue from sales - Cost variables)) x Proceeds from sales.

This indicator is a criterion that assesses the effectiveness of the enterprise.

It happens that variable costs do not always increase in proportion to the increase in output. So, for example, in the production of products, which is created by workers engaged in the night shift, the growth of variable costs will be higher than those made in the day shift. They will differ by the amount of "night" hours, which are paid higher than the daily ones.

Variable costs are divided into the following types:

- Proportional: they increase at the same rate as the volumes of output and sales. Thus, with an increase in output by 10%, such costs will also increase by 10%.

- Progressive: grow much faster than production. For example, with an increase in output by 10%, they increase by 15%.

- Regressive: the growth rates of such costs lag behind the increase in output. So, with an increase in production by 10%, these costs can only grow by 8%.

Variable costs are attributed to the cost of a specific product (services, works) for its intended purpose, since most such basic costs are considered direct. The total value of variable costs increases or decreases, respectively, with the growth or reduction in the output of goods. Up to a certain point in the growth of volumes, variable costs increase slowly, but then, according to the law of diminishing returns, they begin to increase rapidly. This means that the production of each next unit of produced commodity products requires more variable resources.

Specific variable costs are specific materials, raw materials associated with the unit of the sold goods. They can not include the overhead costs of an enterprise.

There is also such a form as conditional variable costs. They change their value in different ratios to a change in such indicators as the volume of production and sales of products, the economic activity of the enterprise. These include the costs of materials, raw materials, wages of production workers, maintenance and repair of equipment, low-value and rapidly wearing tools, depreciation, power.