What are company costs? Explicit and implicit costs

Under costs production understand the costs of manufacturing products. From the standpoint of society, the costs of producing goods are equal to the total costs of labor (living and embodied, necessary and surplus). From the point of view of the enterprise, due to its economic isolation, the costs include only its own expenses. Moreover, these costs are divided into external and internal.
External (explicit) costs- These are direct cash payments to resource suppliers. Explicit costs include wages of workers and salaries of managers, payments to trading firms, banks, payment for transport services and much more.
Domestic(implicit) costs (imputed): costs of own and independently used resource, opportunity costs not provided for in contracts obligatory for explicit payments, and therefore remain not received in monetary form (use of premises or transport owned by the company, own labor of the company owner, etc. .d.)

Internal ed. included in fixed costs and variable costs + normal profit.
Economists consider all costs, both external and internal, as costs.
Fixed, variable and total (total) costs.
Fixed costs are those costs that do not change depending on changes in production volume. These include: loan and credit obligations, rental payments, depreciation of buildings and equipment, insurance premiums, rent, salaries for senior staff and leading specialists, etc.

Variables are called costs, the value of which varies depending on changes in production volume: costs of raw materials, fuel, energy, transport services, wages, etc.

Total costs represent the firm's total costs.
The distinction between fixed and variable costs is significant, since the entrepreneur can control variable costs and their value can be changed, while fixed costs are beyond the control of the company’s administration and are mandatory.

Analysis of the level of coverage of production costs allows you to determine the quantity of products that need to be produced in order to recover costs and make a profit, as well as determine the optimal price of the product.

Fixed and variable costs. Production costs represent the sum of the costs of purchasing factors of production. In 1923, the American economist J. Clark introduced the division of costs into fixed and variable. If in the Marxist concept fixed costs represent the costs of constant capital, then according to J. Clark they include those costs that do not depend on the volume of production. Variable costs include costs, the value of which directly depends on the quantity of products produced (costs of raw materials, materials, wages). The structures of fixed and variable costs are shown in Fig. 11.1 and fig. 11.2.

Division into fixed and variable costs carried out only for a short-term period, during which the company cannot change fixed factors (buildings, structures, equipment). In the long run, there are no fixed costs. All costs become variable, as all factors are subject to change, improvement and renewal.

Gross costs- this is a set of fixed and variable costs in the form of cash expenses for the production of a certain volume of products.

To measure costs per unit of production, indicators of average costs, average fixed and average variable costs are used.

Average costs are formed by dividing gross costs by the number of products produced.

Average constants are obtained by dividing fixed costs by the number of products created.

Average variables are determined by dividing variable costs by the number of products manufactured. Fixed, variable and gross costs are presented in Fig. 11.3.

The graph shows that fixed costs are constant. This is due to the fact that they are associated with the existence of the company, the provision of production equipment, tooling, and energy devices. All this must be paid in advance. In the graph, the indicated expenses amount to 250 thousand rubles.

These costs remain unchanged at all levels of production volume, including zero. Variable costs increase in direct proportion to the increase in production volume. However, the increase in variable costs per unit of production is not constant. At the initial stage, variable costs increase at a slow pace. In our example, this occurs before the release of the 5th unit of production. Then variable costs begin to increase at an increasing rate, due to the law of diminishing returns.

Gross costs increase as variable costs increase. At zero production volume, gross costs are equal to the sum of fixed costs. In our example, they amount to 250 thousand rubles.

The situation is similar when hiring a worker of a certain qualification. The wages paid to him act as opportunity costs for the entrepreneur, since from all other alternatives the company chose a specific worker, missing the opportunity to use the services of another individual. Opportunity costs for using any resource are determined in the same way. Opportunity costs are divided into external and internal.

External(“explicit”) costs are monetary payments that a company makes when purchasing raw materials, supplies, and equipment “from the outside,” i.e., from suppliers who are not part of the company.

Domestic(“implicit”) costs are the unpaid costs for resources owned by the firm. They are equal to cash payments that could be received by transferring them to other entrepreneurs for their own use. Internal costs include: the wages of an entrepreneur, which he could receive while performing the duties of a manager in another company; not received cash in the form of rent, which can be obtained when renting out premises; uncollected funds in the form of interest on capital that the company could have received by placing them on a bank deposit.

When determining a company's behavior strategy, additional costs associated with an increase in the number of products become important. These costs are called marginal costs.

Marginal cost- These are additional, additional costs that are caused by the release of an additional unit of product. Marginal cost is sometimes called differential cost (i.e., difference). Marginal costs are defined as the difference between subsequent and previous total costs.

Average cost curves. A more detailed study of the efficiency of a company's functioning can be done by measuring the cost of producing a unit of output. For these purposes, the categories of average total - ATC, average constant - AFC, average variable costs - AVC are used. They can be depicted graphically as follows (Fig. 11.5).

Average cost curve ATC has an arched shape. This is due to the fact that up to the point M they are predominantly affected by fixed costs A.F.C.. After the point M the main influence on the value of average costs begins to be exerted not by fixed, but by variable costs AVC, and due to the law of diminishing returns, the average cost curve begins to rise.

At the point M average total costs reach a minimum value per unit of output. It is necessary to take into account that the marginal cost curve is not related to fixed costs; they do not depend on whether the firm reduces or increases its output. Therefore, we will not depict the average fixed cost curve on the graph. As a result, the graph will take the following form (Fig. 11.6).

Marginal cost curve MS at the initial stage it goes down as a result of the fact that marginal costs are determined by variable costs. At the point S 1 limit curves MS and variables ABC costs overlap.

This indicates that variable costs for this type of product are beginning to increase and the firm must stop producing this type of product. However, this does not mean that the company becomes unprofitable and may go bankrupt. The firm can cover the fixed costs for this type of product with income from the sale of other goods.

At the point S the curves of average totals intersect ATS and limit MS costs In theory market economy this point is called the point of equal opportunity or the minimum profitability of the company. Dot S 2 and the corresponding production volume q S 2 means that the firm can provide the maximum possible supply of goods with full use of production capacity and available resources.

Costs– monetary expression of the use of production factors for the production and sale of products.

Costs are used in business activities when developing business plans, in the economic feasibility of projects, in financial analysis. In business practice and in legislative acts, the term “cost” is used to determine the amount of costs.

Cost price– costs associated with the production and sale of products, expressed in monetary form. These costs are calculated on the basis of the financial statements of the enterprise and correspond to explicit costs, which are also called accounting costs. These are costs for materials, wages, and depreciation of fixed assets.

Economic costs- the costs of using any factor of production, measured in terms of their best alternative use. They are divided into: external and internal.

Economic costs is the sum of external costs (And external) and internal costs (And internal):

And econ = And external + And internal

External costs– payment to third parties for sold resources. For example, payments for electricity, materials, wages of employees.

Internal costs– costs from using one’s own resources. For example, a private store or hairdresser. Own resources here are premises, own labor, and money capital. Internal costs include:

1) payment for land;

2) tax on buildings;

3) entrepreneur’s salary;

4) money (profit in the form of interest on capital);

5) normal profit.

Normal profit is the minimum fee required to retain entrepreneurial talent. It corresponds to the amount of interest on deposits in the bank. Accounting costs These are only external costs.

Economic profit (P econ) is equal to:

P econ =Q P – (And external + And internal),

where Q Р – revenue from sales of products.

Accounting profit (P accounting) is equal to:

P accounting = Q RP –I external.

Enterprise costs are divided into fixed and variable.

Fixed costs– these are those that do not depend on the volume of products produced.

Fixed costs include rent, depreciation, depreciation of intangible assets, wear and tear of wearable items, costs of maintaining buildings, services of third-party organizations, costs of training and retraining of personnel, non-capital costs associated with improving technology and organization of production, contributions to the repair fund , deductions for compulsory property insurance, expenses for remuneration of management personnel.

Variable costs depend on the volume of products produced.

Variable costs include:

1) material costs,

2) transportation costs,

3) expenses for remuneration of the main piece workers.

General costs equal to the sum of fixed and variable costs.

Average costs are called costs per unit of production.

Average costs (I av) are used to determine profit per unit of production (P unit).

P unit =C units +And Wed,

where C unit – unit price.

Marginal cost(And marginal) are the additional costs associated with producing one more unit of output (Δq).

And limit = ΔI transfer. /Δq,

where ΔI is the increase in variable costs. For example, the production of the first unit of output increases the amount of total costs from 100 to 190 rubles, so the marginal cost will be 90 rubles. The marginal cost of the second unit of production will be 80 rubles. (270-190), third – 70 rubles. (340-270). Marginal costs show what costs a company will have to incur to produce an additional unit of output and how much can be saved by reducing production volume.

There are short-term and long-term periods of enterprise activity. If a company has unpaid fixed costs, then it is in a short-term period and cannot close. After paying off obligations for fixed costs, the short-term period of the enterprise’s activity automatically turns into a long-term one. Here the entrepreneur makes a decision: to continue or terminate the activity. The division into short-term and long-term periods is conditional, and the true duration depends on the nature of production. An enterprise that makes a profit continues its activities, and one that suffers losses stops it.

Example. And post = 100 thousand rubles. R=100 thousand rubles And alternating =240 thousand rubles Q P =100*3=300 thousand rubles And general =340 thousand rubles. The loss is equal to 40 thousand rubles. (340 – 300). In the long term, the enterprise must close, since the loss is 40 thousand rubles, if it continues to operate. If it ceases its activities, the loss will be equal to 100 thousand rubles. (fixed costs). In any case, there is a loss, so the enterprise must close. The company is in a short-term period because it does not pay off its obligations to pay off fixed costs. What to do? 1. Declare yourself bankrupt, that is, sell your property, which will take quite a bit of time, if Q P< П перем. 2. Продолжить деятельность и за счет выручки от реализации продолжить гасить постоянные издержки в ущерб переменным, если Q РП >P AC The task comes down to minimizing losses. If the activity continues, the loss is less than 40 thousand. rub. Consequently, the enterprise in the long run must choose the option of continuing its activities.

Accounting for costs included in the cost of production is carried out in the form of estimates and in the form of calculations.

Estimate– accounting of costs for the annual volume of production for economically homogeneous elements (Table 1).

Table 1 - Contents of cost estimates for production

Purpose of estimate: the estimate is drawn up to plan the costs of producing the entire volume of production for the year, to draw up a financial plan, to identify savings reserves for cost elements.

Material costs include the cost of basic and auxiliary materials, components, transportation costs for moving materials from the central warehouse to workshops, delivery of finished products to warehouses for storage, to the departure station, the cost of fuel purchased from outside, the cost of all types of energy (electric, thermal, compressed air) purchased and produced by the enterprise itself, the cost of purchasing containers and packaging.

Returnable waste- the remainder of raw materials, materials, semi-finished products formed during the production process and which have lost completely or partially the consumer qualities of the original resource and, therefore, are used at increased costs or are not used at all for their intended purpose. Returnable waste is valued at a reduced value of potential use, but with increased costs.

Costing- this is an accounting of the costs of production and sales of a unit of production, grouped by expense items.

Costing includes the following expense items (Table 2).

Expenses for maintenance and operation of equipment(RSEO) include:

1) wages of auxiliary workers servicing equipment (adjusters, electricians, repairmen);

2) auxiliary materials (oils, emulsion);

3) costs for current repairs and maintenance of equipment;

4) depreciation of equipment, Vehicle and inventory;

5) intra-factory movement of goods to workshops and warehouses;

6) wear and tear of low-value and fast-wearing devices.

Table 2 - Contents of product cost calculation

General production expenses include:

1) wages of management personnel and other shop personnel;

2) depreciation of buildings, workshop equipment;

4) costs of testing, experiments, research, rationalization and inventions;

5) costs of labor protection in the workshop.

General running costs include:

1) wages of plant management personnel;

2) depreciation of factory buildings;

4) travel expenses;

6) costs of rationalization and invention.

Other production costs include deductions for research and development, costs of warranty service and repair of products, losses from defects;

Non-production expenses– these are the costs of containers, packaging, delivery of products to their destination, advertising.

Profit and its types

Profit is a reward for entrepreneurial activity.

The following are distinguished: types of profit:

1) profit from sales of products;

2) profit from other sales;

3) non-operating profit;

4) gross profit;

5) taxable profit;

6) net profit.

Profit from product sales(P r) is equal to the difference between revenue from sales of products, excise tax, VAT and cost of production.

P r = Revenue – Excise tax – VAT – Cost

Revenue from product sales is determined by the product price multiplied by the quantity of product.

Profit from other sales(P etc.) – this is profit from the sale of fixed assets and other property of the enterprise, waste, and intangible assets.

P etc. = Property sale price – Property residual value

Non-operating profit(P non-real) is equal to the difference between income and expenses from non-real operations.

Income from non-operating operations include income from equity participation in the activities of other enterprises, dividends on shares, interest on bonds, income from leasing property, fines, penalties, penalties for violation of the terms of business contracts, income from compensation for losses caused, profits from previous years identified in the reporting year .

Expenses for non-operating operations include costs of canceled production orders, costs of production that did not produce products, costs of maintaining mothballed production facilities, losses from markdowns of inventories and finished products, losses on operations with containers, legal costs and arbitration costs, fines, penalties, penalties, expenses for compensation of losses caused, losses from operations of previous years identified in the reporting year, losses from natural disasters, negative exchange rate differences on foreign currency accounts.

Gross profit equal to the sum of profit from sales of products, profit from other sales and non-operating profit.

P gross = P r + P etc. + P unreal.

Taxable income is defined as the difference between gross profit and income tax benefits.

P taxable = P gross - Income tax benefits

Income tax benefits:

1) profit aimed at technical re-equipment of production;

2) profit allocated for environmental protection measures in the amount of 30% of capital investments;

3) the enterprise’s costs for maintaining the socio-cultural sphere on its balance sheet;

4) contributions to charitable purposes, environmental and health funds (no more than 3% of taxable profit).

5) additional benefits for small enterprises with up to 100 people:

a) profits allocated for construction and reconstruction are excluded;

b) in the first two years, no tax is paid on the profits of an enterprise for the production and processing of agricultural products, consumer goods, or the production of building materials.

Net profit(P net) is equal to the difference between taxable profit and income tax.

P net = P taxable – Income tax

The income tax rate since 2009 is 20%.

Topic 8. Enterprise planning

8.1 Essence, principles of planning and system of enterprise plans

8.2 Development of enterprise strategy

8.1 Essence, principles of planning and system of enterprise plans

Planning– this is the setting of goals for a certain future, analysis of methods for their implementation and resource provision.

Planning principles:

1) continuity. It lies in the fact that the planning process at an enterprise must be carried out constantly and plans must continuously replace each other.

2) flexibility. It consists in the ability of planning to change its focus in the event of unforeseen circumstances. Plans must be written in such a way that they can be changed.

3) accuracy. It means that plans must be specific, especially short-term plans.

The system of enterprise plans is reflected in strategic planning, which summarizes all types of planned activities in the enterprise, including long-term, tactical and functional planning. The main thing is that all management decisions are aimed at implementing the strategy.

A modern enterprise should develop the following types of plans.

1. Strategic plans:

o from one year to five years with prospects for improving production, new technologies, release of new products;

o main areas of activity for 10-15 years.

2. Current plans for 1 year.

3. Operational plans from 1 shift to 1 month.

The strategic plan includes the following sections:

Ø mission and goals of the enterprise

Ø analysis of the state and prospects for the development of the external environment

Ø Analysis of the state and forecast of competition development

Ø analysis of the strengths and weaknesses of the enterprise

Ø activities for the implementation of functional strategies

Ø resources needed to implement strategies.

Ø main stages of strategy implementation

Ø evaluation of the strategic plan.

Current (annual) plan. It is developed in full accordance with the strategic plan and serves as a tool for implementing the strategic plan.

It includes the following sections:

1) economic efficiency of production;

2) norms and standards;

3) production and sales of products;

4) logistics of production;

5) personnel and wages;

6) production costs, profits and profitability;

7) innovation;

8) investments and capital construction;

9) nature protection and rational use of natural resources;

10) social development of the enterprise staff;

11) social funds;

12) financial plan.

Operational plan. It is aimed at strict and timely execution of planned work and includes operational calendar plans, that is, schedules for the launch and production of parts, shift and daily assignments at the level of workshops, sections, and workplaces.

Operational planning is carried out for a workshop for 1 month, for a site or workplace - from a week to a shift.

8.2 Development of enterprise strategy

Under the enterprise strategy refers to the development of organizational and economic measures that have found concrete expression in annual and long-term plans necessary to achieve the set goals.

A clearly developed strategy provides the organization with flexibility in management, the ability and ability to quickly adapt, not to miss new opportunities opened up by the market and innovations, and to see development prospects.

Strategic management includes the following main stages.

Stage 1. Analysis of the external and internal environment of the enterprise. This is the initial stage in strategic management, as it forms the initial basis for determining the mission and goals of the organization and developing a development strategy. Strategic analysis is carried out on the basis of systemic and situational approaches to studying various factors influencing the activities of the organization and determining the entire process of strategic management. The result of the analysis is obtaining a complete description of the object, identifying features, patterns and trends in its development.

Stage 2. Choosing a development strategy. At this stage, based on an assessment of the effect of all factors of the external and internal environment, the enterprise’s position in the market, strategic objectives and methods for solving them are determined. Activities for choosing a strategy should be carried out taking into account goals, linked to resources and time, and effectively combined.

The strategy selection process consists of the following stages: 1) developing strategies to achieve the goals; at the same time, it is desirable to propose and develop as many alternative strategies as possible; 2) refinement of strategies to the level of adequacy to the development goals of the enterprise and the formation of a general strategy; 3) adjustments to the overall strategy and development of individual supporting strategies. 2

There are four basic strategies.

1. Limited growth strategy. The development goals of this type of strategy are set “from what has been achieved” and are adjusted in accordance with changing conditions. This is the simplest, most convenient and least risky course of action. It is chosen by enterprises in established fields of activity with stable technology.

2. Growth strategy. It is characterized by a dynamic level of development with rapidly changing technology. This strategy is followed by enterprises seeking high rates of economic growth. This strategy includes:

ü Concentrated growth strategy (strengthening market position, market development, product development);

ü Integrated growth strategy (property acquisition; internal expansion)

ü Diversified growth strategy (production of new products).

3. Reduction strategy. This is a targeted and balanced reduction of this business due to changes in the market and the economy as a whole. Within this strategy, there are several options: liquidation, cutting off excess, reduction and reorientation.

4. Combined strategy. This is a useful combination of all the basic strategies discussed above. This strategy is usually followed by large enterprises operating in several industries.

There are several methodological approaches to planning strategic alternatives and choosing a strategy: matrix of product/market opportunities; Boston Advisory Group matrix – a method for assessing an organization’s position in the market, etc.

Stage 3. Execution of strategy. At this stage, strategic management shifts towards practical activities - distribution of work, responsibility for drawing up plans, schedules, methods of performing work. At this stage it is adjusted organizational structure management, decision-making system, job descriptions.

Stage 4. Monitoring and evaluating the implementation of the strategy. The control procedure provides feedback during the implementation of the strategy. The main objectives of control are:

ü providing timely and necessary information on the implementation of the chosen strategy;

ü establishing a system of indicators by which strategic control is carried out;

ü timely analysis of deviations and their causes;

ü introduction of appropriate adjustments in case of deviations in the process of strategy implementation.

Assessing the efficiency of economic activity and the state of the enterprise’s balance sheet

The most general concept of production costs is defined as the costs associated with attracting economic resources necessary for the creation of material goods and services. The nature of costs is determined by two key provisions. Firstly, any resource is limited. Secondly, every type of resource used in production has at least two alternative uses. There are never enough economic resources to satisfy the entire variety of needs (which causes the problem of choice in the economy). Any decision about the use of non-economic resources in the production of a particular good is associated with the need to refuse to use these same resources for the production of some other goods and services. Looking back at the production possibilities curve, we can see that it is a clear embodiment of this concept. Costs in the economy are associated with the refusal to produce alternative goods. All costs in economics are taken as alternative (or imputed). This means that the value of any resource involved in material production is determined by its value at the best of all possible options for using this factor of production. In this regard, economic costs are interpreted as follows.

Economic or alternative (opportunity) costs are costs caused by the use of economic resources in the production of a given product, assessed from the point of view of the lost opportunity to use the same resources for other purposes.

From the entrepreneur's point of view, economic costs are payments that a firm makes to a resource supplier in order to divert these resources from use in alternative industries. These payments, which the firm incurs out of pocket, can be external or internal. In this regard, we can talk about external (explicit, or monetary) and internal (implicit, or implicit) costs.

External costs are payments for resources to suppliers who are not among the owners of this company. For example, wages of hired personnel, payments for raw materials, energy, materials and components provided by third-party suppliers, etc. The company can use certain resources that it owns. And here we should talk about internal costs.

Internal costs are the costs of your own, independently used resource. Internal costs are equal to the cash payments that could be received by the entrepreneur for his own resources under the best of all alternative options for their use. We are talking about some income that an entrepreneur is forced to give up when organizing his business. The entrepreneur does not receive this income because he does not sell the resources he owns, but uses them for his own needs. When creating his own business, an entrepreneur is forced to give up some types of income. For example, from the salary that he could receive if he were employed if he did not work in his own enterprise. Or from the interest on the capital belonging to him, which he could have received in the credit sector if he had not invested these funds in his business. An integral element of internal costs is the normal profit of the entrepreneur.

Normal profit is the minimum amount of income that exists in a given industry at a given time and that can keep an entrepreneur within his business. Normal profit should be considered as a payment for such a factor of production as entrepreneurial ability.

The sum of internal and external costs together represents economic costs. The concept of “economic costs” is generally accepted, but in practice, when conducting accounting at the enterprise, only external costs are calculated, which have another name - accounting costs.

Since accounting does not take into account internal costs, accounting (financial) profit will be the difference between the firm’s gross income (revenue) and its external costs, while economic profit is the difference between the firm’s gross income (revenue) and its economic costs (the amount both external and internal costs). It is clear that the amount of accounting profit will always exceed economic profit by the amount of internal costs. Therefore, even if there is accounting profit (according to financial documents), the enterprise may not receive economic profit or even incur economic losses. The latter arise if gross income does not cover the entire amount of the entrepreneur’s costs, i.e. economic costs.

And lastly, when interpreting production costs as the costs of attracting economic resources, it is appropriate to remember that in economics there are four factors of production. These are labor, land, capital and entrepreneurial ability. By attracting these resources, the entrepreneur must provide their owners with income in the form of wages, rent, interest and profit.

In other words, all these payments in their totality for the entrepreneur will constitute production costs, i.e.:

Production costs =

Wages (expenses associated with attracting a production factor such as labor)
+ Rent (costs associated with attracting a production factor such as land)
+ Interest (costs associated with attracting a factor of production such as capital)
+ Normal profit (costs associated with the use of a factor of production such as entrepreneurial ability).

Economic and accounting costs

Understanding costs in economics is associated with limited resources and the possibility of their alternative use for production various types products. The use of resources in the production of one good involves society sacrificing a certain amount of other goods, or in other words, incurring a cost.

Thus, the general understanding of economic costs is associated with the denial of the opportunity to produce alternative goods and services. The economic (opportunity) cost of any resource used to produce a given good is equal to its value at the best possible alternative use in the economy. This situation should be clarified.

Now let's look at the general concept of economic costs as they apply to a firm.

In the theory of market economics, a distinction is made between accounting and economic costs of a firm. The economist's approach to estimating costs is somewhat different from the accounting approach. The accountant takes into account production costs as actual costs incurred, the company's expenses for the purchase of resources. The economist, in addition, must evaluate the costs and sacrifices of the firm associated with using its own resources for its production instead of selling them to other firms. This accounting is especially important when determining the development prospects of a company.

The economic (alternative) costs of a firm are those costs and sacrifices that a firm must bear in order to divert both attracted and own resources from their alternative use by other firms.

Economic costs include external (explicit) costs and internal (hidden) costs.

External (explicit) costs are the actual monetary expenses that the company makes for resources received from external suppliers (payments for raw materials, materials, energy, transport services, labor and other resources purchased from outside). External costs are traditional accounting costs.

The concept of internal costs is associated with the use of a company's own resources. From the point of view of a given firm, internal (hidden) costs are monetary income that is sacrificed by a firm that owns resources, using them for its own production of goods or other economic purposes, rather than selling them on the market to other consumers. Quantitatively, they are equal to the income that the company could receive with the most profitable alternative sales option.

Normal profit refers to the minimum, or normal, remuneration to an entrepreneur for performing entrepreneurial functions. This is the minimum rate of return that any entrepreneur should receive on his capital. At the same time, it should not be less than the bank interest, since otherwise there will be no point in engaging in entrepreneurial activity. For an accountant, normal profit is part of accounting profit. For an economist, it is one of the elements of internal (hidden) costs.

Accounting profit is defined as the difference between gross revenue (gross income) and accounting (external) costs.

Economic profit is the difference between gross revenue (gross income) and economic costs (external + internal, including the latter normal profit). Economic profit is income received in excess of normal profit.

It is necessary to be able to show with an example the difference between external and internal, accounting and economic costs, normal, accounting and economic profit.

Economic costs and profits

In economic theory, there are economic and accounting approaches to determining a company's costs.

Accounting costs represent the actual consumption of production factors to produce a certain amount of products at their purchase prices.

The company's costs in accounting and statistical reporting appear in the form of production costs.

The economic understanding of production costs relates to the scarcity of resources and the possibility of their alternative uses.

The economic cost of any resource chosen to produce a product is equal to its value at its best use.

Economic costs can be explicit (monetary) or implicit (implicit, imputed).

Explicit costs are opportunity costs that take the form of direct cash payments to suppliers of factors of production and intermediate goods.

Explicit costs are external to the firm and are associated with the acquisition of external resources. For example, wages for workers, managers, payment of transportation costs, etc.

Implicit costs are the opportunity costs of using resources owned by the owners of the firm (or owned by the firm as legal entity), which are not received in exchange for explicit (monetary) payments.

Implicit costs are internal to the firm. For example, the owner of a company does not pay himself a salary and does not receive rent for the premises in which the company is located. If he invests money in trading, he does not receive the interest that he would have had if he had deposited it in the bank.

But the owner of the company receives the so-called normal profit. Otherwise, he will not deal with this matter. The normal profit received by the owner is an element of cost. Implicit costs are not reflected in the financial statements.

Economic costs are the sum of explicit and implicit costs.

In other words, economic costs include not only the cost of acquired factors of production, but also the income that could be obtained by investing one’s resources in the most profitable areas of entrepreneurship. Accounting for lost opportunities is an important feature of a market economy.

Distinguishing between explicit and implicit costs is essential to understanding what economists mean by profit. To a first approximation, profit can be considered as the difference between the selling price of a product and production costs. Being the goal and motive of entrepreneurial activity, profit constitutes its material basis.

The following types of profit are distinguished:

Accounting profit (рr - profit) is the part of the company's income that remains from total revenue after compensation for external costs, that is, payments for supplier resources.

Accounting profit excludes only explicit costs from income and does not take into account implicit ones. Such profit does not fully characterize the effect of entrepreneurial activity. When the capital belongs to an individual or a company, the question arises whether there are losses from not effective use equity compared to alternative options.

Economic (net) profit (p) is the part of the firm's income that remains from total revenue after subtracting all costs (explicit and implicit, including the entrepreneur's normal profit).

Economic profit may be zero. This means that the firm uses its resources with minimal efficiency. This is enough to keep the company in the industry. If a company receives economic profit, it means that in this industry, entrepreneurship, labor, capital, and land are currently providing a greater effect than the minimum acceptable. In addressing the issue of profit maximization, an economic approach is taken into account.

Implicit economic costs

Implicit costs are alternative costs of enterprise resources that do not have forms of payment. Implicit costs are the amount of lost revenue for a firm. Such costs are not included in the cost of goods.

They are formed from the use of the enterprise’s own resources, its own industrial space, and not rented premises. Or, for example, the labor costs of the organization’s management team, which are not reflected in wages.

Implicit costs can be defined as the profit that an enterprise could receive with a different strategy or with other options for using its resources.

Let's take a closer look at what implicit costs mean.

From the division of costs into accounting and alternative costs comes the classification of costs into implicit and explicit.

Explicit costs are determined by the amount of expenses of the enterprise for the payment of external resources, that is, resources that are not owned by this company. For example, materials, raw materials, labor, fuel and so on. Implicit costs are determined by the cost of internal resources, that is, resources that are owned by this company.

An example of an implicit cost for an entrepreneur is the salary that he could receive as an employee. For the owner of capital property (buildings, equipment, machinery, and so on), previously incurred expenses for its acquisition cannot be attributed to the obvious costs of the present period. But the owner bears implicit costs, since he could sell this property and put the proceeds in the bank at interest, or rent it out to a third party and have income.

Implicit costs, which are part of economic costs, should always be taken into account when making current decisions.

Explicit costs are opportunity costs that will take the form of cash payments to suppliers of intermediate goods and factors of production.

Explicit costs include:

Cash costs for the purchase and rental of machines, equipment, buildings, structures;
workers' wages;
communal payments;
payment of transportation costs;
payment for insurance companies, bank services;
payment to suppliers of material resources.

Implicit costs are the opportunity costs of using resources that belong to the company itself, that is, unpaid costs.

Implicit costs can be represented as:

Cash payments that a company can receive from the profitable use of resources owned by it;
for the owner of capital, implicit costs are the profit that he can receive by investing his capital not in this, but in some other business (enterprise).

As already noted, from the division of costs into alternative and accounting, the classification into explicit and implicit arises. Explicit operating costs are determined by the firm’s total expenses for paying for external resources used, that is, resources that this enterprise does not own. For example, this could be fuel, raw materials, materials, labor, and so on. Implicit costs determine the cost of internal resources, that is, resources owned by the firm. An example of implicit costs is the salary an entrepreneur would receive if he were employed. The owner of capital property also incurs implicit costs, since he could sell his own property and put the proceeds in the bank at interest or receive income and rent out the property. When solving current problems, it is always necessary to take into account implicit costs, and when they are quite large, it is better to change the field of activity. Thus, explicit costs are opportunity costs that take the form of factors of production for the enterprise and payments to suppliers of intermediate goods. This category of expenses includes wages to workers, payments to resource suppliers, transportation costs, payments to banks, insurance companies, utility bills, cash expenses for the rental and purchase of machines, structures and buildings, and equipment.

Implicit costs mean the opportunity costs of using resources that directly belong to the enterprise, that is, unpaid costs. Thus, implicit costs include monetary payments that an enterprise can receive through a more profitable use of resources owned by it. For the owner of capital, implicit costs include the profit that the owner of the property can receive by investing capital in some other area of ​​\u200b\u200bactivity, and not in this particular area.

Explicit economic costs

In an economy with limited resources, the costs of any chosen action are opportunity costs.

Opportunity costs are divided into two groups:

1. Explicit (external, accounting) - these are cash payments for factors of production and components.
2. Implicit (imputed, implicit, internal) - lost lost profits from factors of production owned by the owner of the company or the company as a legal entity.

Implicit (imputed) costs are divided into two parts:

I. Lost profits when using factors of production.
II. Normal profit is factor income necessary to reimburse the costs of the entrepreneurial factor.

Normal profit is the minimum planned profit that can keep an entrepreneur in a given area of ​​business.

Accounting profit is revenue (gross income) minus explicit costs. Accounting profit allows you to evaluate the effectiveness of the implementation of the selected option.

Economic profit is accounting profit minus implicit costs (including normal profit).

For example:

1) we have 100,000 rubles. There are two options: a) invest in production; b) deposit into an account at 20% per annum (r).

If we choose the first option, then we lose the opportunity to receive 120 thousand rubles. - lost opportunity or implicit costs.

2) The entrepreneur has K = 10,000 rubles. cash and uses it in production. At the end of the year, he sold goods worth 11 thousand rubles. Excess of income over expenses PF=1000 rub. He could put money in the bank at an annual interest rate of r = 12% and at the end of the year receive the amount K’ = 11,200 rubles, therefore, since he chose the first option, he missed the opportunity to receive 11.2 thousand rubles. - this is a missed opportunity. He didn't win 1k. rubles, and lost 0.2 thousand rubles.

Economic profit = accounting profit - implicit costs = total revenue - opportunity cost for each productive resource - foregone payment for capital resources owned by the firm or the owners of the firm.

When calculating economic profit, as a rule, entrepreneurial income (risk payment) and the rate of return on capital are not considered as explicit costs.

The rate of return on capital is defined as the ratio of the profit received with the help of a given capital to the amount of that capital.

The dynamics of economic profit are directly related to the entry and exit of firms from a particular market; if economic profit is negative, firms will leave this area of ​​activity; if economic profit is positive, they will enter.

In the long run, economic profits are typically zero, and firms earn normal profits that keep them in a given line of business.

Economic costs are the sum of accounting (explicit) and implied (implicit) costs.

To identify additional sources of increased profit, accounting profit is divided into normal profit (minimum level of profit) capable of keeping an entrepreneur in a given area of ​​business and excess profit (economic) profit.

Costs of Economic Choice

Turning to the study of the features of the market system, we ask ourselves the question of what should be included in the concept of “market”. IN general outline This concept is known to any person who makes any purchases. At the same time, the concept of markets is broader and more multifaceted. The changes taking place here interest and affect a huge number of people, including those who, it would seem, have nothing to look for or lose in this complex system.

It is difficult to provide a brief and unambiguous definition of a market system, primarily because it is not a frozen, once-and-for-all phenomenon, but a process of evolution of economic relations between people regarding the production, exchange and distribution of labor products and resources for individual and industrial consumption.

The market is a universal system for using limited resources.

Only this system creates the conditions for their effective use.

This obvious fact is still not indisputable today for many people who demand the continuation of revolutionary upheavals, but in the last century it seemed only the subject of fundamental scientific theories. Some of these theories should be at least briefly recalled, especially since their emergence coincided in time, but were fundamentally different in content and conclusions. We are talking, for example, about the ideas of opportunity costs and public choice, substantiated by two extremely different authors: F. Wieser and K. Marx.

Limited resources do not allow the production of all types of consumer goods that people need.

Limitations are inherent in fossils, capital, knowledge and information about production technologies. Thus, the limited labor resource is manifested in the fact that a person, as a worker, is capable of producing only one type of product, working only in one industry. However, his needs cannot be satisfied by the single variety of product he produces. His needs, like the needs of all people, amount to millions of consumer goods. But not a single person, only due to the physiological limits of his body, can work equally effectively even for one day. This is only possible within a certain number of hours of the working day. Any industry may need labor resources, and society may need the products of their labor. But the employment of every able-bodied person in one industry excludes the possibility of his simultaneous employment in all others.

At any given moment in time, the amount of any resource is a fixed value. The use of almost all, especially primary, resources (labor, land, capital) in any one industry excludes the possibility of their use in any other. For example, the earth's resources are limited not only in the sense of the natural planetary limits of the earth's land or the geographically designated territories of individual states. The land is inherently limited in the sense that each section of it at the same time can be used either in the agricultural sector, or in the mining industry, or for construction.

The idea of ​​opportunity costs belongs to Friedrich Wieser, who identified it in 1879 as the idea of ​​using limited resources and initiated criticism of the cost concept contained in the labor theory of value.

The essence of F. Wieser's idea of ​​opportunity costs is that the real cost of any produced good is the lost utility of other goods that could have been produced with the help of resources used for already produced goods. In this sense, opportunity costs are the costs of rejected opportunities. F. Wieser determined the value of resource costs in terms of the maximum possible return on production. If too much is produced in one direction, less may be produced in another, and this will be felt more strongly than the gain from overproduction. Satisfying needs with an increasing production of some goods and refusing additional quantities of others, one has to pay for the choice made a correspondingly increasing price from unreceived benefits and rejected opportunities. This is the meaning of the idea of ​​opportunity costs, called “Wieser’s law” in the theory of marginalism.

The question of WHAT, HOW and FOR WHOM to produce in the theory of marginalism takes on the practical meaning of responsibility for choosing one or another alternative. The right to choose a priority among alternatives is at the same time the obligation to compensate for opportunity costs, to pay an increasing price for diverting resources to some priorities and abandoning others.

For marginalism, and F. Wieser in particular, the socialist idea was unacceptable, as the idea of ​​public choice of an economic system that would ensure the efficient distribution of limited resources. Marginalists did not propose a revolution, but a reform of the existing market system to eliminate its social contradictions.

As is known, in a command system, the choice of priorities from all possible alternatives was the exclusive right of the state. Limited economic resources were distributed primarily for the sake of the ideological postulate of demonstrating the superiority of the socialized economic model. The principle “who does not work, does not eat” contributed to the involvement of almost the entire working population in production. Land, minerals and capital resources were wasted on an incalculable scale, and the talents of scientists were directed to the search for the latest military technologies and products. At the same time, social sectors were financed on a “residual” basis. Absolutely all consumer products were in short supply and were subject to distribution either in turn or through various administrative (explicit and implicit) channels. This order was essentially the “price” of achieving the goals of the imaginary well-being of the socialized command economy. The opportunity costs of such a choice, i.e. refusal to produce the required quantity of consumer goods (food, clothing, household appliances, cars, housing, computers, books, sports and tourism goods, household and social services, etc.) resulted in total shortages. The state completely “shifted” the opportunity costs of such a choice onto the entire society and each individual consumer, who paid for the waste of resources in full through their own underconsumption.

Ultimately, extensive resource exploitation reached its natural limit of limitation and the “price” paid for the state’s choice of such a development alternative increased to levels that were not subject to compensation. When expanded reproduction became impossible even in industries producing means of production, the command-administrative system of the economy itself collapsed.

The choice of decisions related to the problem of WHAT, HOW and FOR WHOM to produce, the costs of such a choice, and, accordingly, the opportunity costs of the market organization are “shifted” to private enterprise. In this case, the “price” of risk for the choice made is either profit or loss. In essence, they act as entrepreneurial payment for the use of part of society’s limited resources for the production and supply of various goods. If the goods offered are not in demand and do not satisfy the needs of society, they will not be purchased by consumers and the costs of entrepreneurial choice will not be reimbursed. In the absence of consumer demand, the entrepreneur's losses are unreimbursed economic resources that he paid for with his own money. In addition, having made the wrong choice about WHAT, HOW and FOR WHOM to produce, a private entrepreneur has practically no opportunity to “shift” the costs of his erroneous choice onto society and consumers who do not want to buy the goods he produces. True, there will still be costs here, since limited resources of society have already been spent on a product that no one needs. But this cost is at least recovered, paid for with the personal money of the unsuccessful entrepreneur, and the opportunity cost becomes largely his personal cost. Real resource losses are reduced here to a certain value, which acts as a kind of “payment” for the wrong choice, on which the limited production resources of society should not be spent in the future.

Only consumer demand, the fact of paying supply prices, serves as evidence of a rational choice of alternatives for using society’s limited resources to produce the goods it needs.

In a market system, entrepreneurial risk acts as a kind of catalyst for trial and error, a way of successively approaching price equilibrium and choosing about WHAT, HOW and FOR WHOM should be produced.

An entrepreneur solves this triad of problems only if they coincide:

Its supply and consumer demand;
- prices of goods and costs of their production.

To the question “WHAT to produce?” Only consumers can respond by paying for the goods they produce with their own money. By paying the price of the goods produced, consumers compensate for the costs of resources and “confirm” the feasibility of this production choice. The money paid goes to the entrepreneur and partly becomes his profit for a successful choice, and partly is used to pay for newly attracted resources for a new production output. The resources paid by the entrepreneur turn into income for the owners of these resources. If he uses the resources of land, real estate or fossil raw materials, then the owners of these resources receive income in the form of rent and (or) rent. If he attracts capital resources for production, he will pay either their market price or a leasing interest, which is a form of income for the owner of capital resources (machinery, equipment, machinery). Finally, if an entrepreneur attracts labor resources from workers and specialists, he pays them wages or other forms of monetary compensation for their labor, intelligence, and qualifications.

The question “HOW to produce?” is also resolved through risk and entrepreneurial choice. Competition among manufacturers dictates the need to ensure: mass production; minimizing resource costs per unit of production; technology efficiency (quality of labor and technology); improving the consumer properties of manufactured products. It is possible to withstand competition in product prices and make a profit only by reducing costs while maintaining high standards of quality and production efficiency.

The answer to the question “FOR WHOM are various goods produced?” depends on the solvency of consumers, determined by their income from labor, intellectual property, ownership of land, real estate, capital assets, securities, cash deposits, transfers and other payments from the state. The problem “FOR WHOM to produce” contains an important social “component” in the case of low purchasing power of consumers. However, this problem is solved not by the market system, with its inherent principles and mechanisms, but by the distribution functions of the state.

Types of economic costs

As you know, factors of production can be combined in various ways, providing the same amount of output at the enterprise. The choice of the optimal combination of production factors is associated with determining production costs.

Costs are the cost of resources for production in value terms. Final result activity of the entrepreneur - obtaining economic profit - is determined by the type of market period during which the factors of production decrease. There is a short-term period and a long-term period.

The short-term period is a period during which it is quite difficult for a company to change its production capacity, equipment and technology. However, over a short period, it is able to change the intensity of use of production factors: labor, raw materials, materials, energy, etc. At the same time, the amount of real capital does not change.

In the short term there are:

Fixed costs (TFC), the value of which does not depend on the volume of output (depreciation, interest on a bank loan, rent, maintenance of the administrative apparatus, etc.).

Variable costs (TVC), the value of which changes depending on changes in production volume (costs of raw materials, materials, fuel, energy, wages of workers, etc.).

As production volume increases and fixed costs remain constant, variable costs increase. If the firm stops production and output (Q) reaches zero, then variable costs will be reduced to almost zero, while fixed costs will remain unchanged.

Total (gross) costs (TC) are the sum of fixed and variable costs calculated for each given volume of production: TC=TFC+TVC. Since fixed costs (TFC) are equal to some constant, the dynamics of gross costs will depend on the behavior of variable costs (TVC). To obtain the total cost curve, it is necessary to sum up the graphs of fixed and variable costs - to shift the TVC graph upward along the y-axis by the value TFC, which is unchanged for any Q.

In addition to gross costs, the entrepreneur is interested in the costs per unit of output, which are called average. This group of costs includes:

Average fixed costs (AFC) - fixed costs calculated per unit of production: AFC = TFC/Q, where Q is production volume. As production volume increases, fixed costs per unit of output will decrease.

Average variable costs (AVC) - variable costs per unit of production: AVC = TVC/Q. The dynamics of average variable costs is determined by changes in the return on the variable factor. At the initial stage of the production process, average variable costs decrease, then reach their minimum, after which they begin to increase.

Average total (total, gross, total) costs (ATC) - total costs per unit of production: ATC = AFC + AVC. Comparing average total costs with the price level allows you to determine the amount of profit.

You can determine how a company's costs change with the release of an additional unit of output using the marginal cost (MC) indicator - the additional costs required to produce each subsequent unit of output: MC = TC/Q.

The operation of the short-run model is explained using the law of diminishing returns (diminishing marginal productivity). In accordance with this law, starting from a certain point, the successive addition of identical units of a variable resource (for example, labor) to a constant, constant resource (for example, capital or land) gives a decreasing marginal, or additional, product per each additional unit of a variable resource - the marginal product (marginal productivity) of the variable resource decreases.

In this regard, it is the category of marginal costs that is of strategic importance, since it allows us to show the costs that the company will have to incur if it produces one more unit of output or save them if production is reduced by this unit.

Often the state of affairs at a company is also judged by taking into account the costs of only those resources that the company acquires from outside (raw materials, supplies, labor, etc.). They are called explicit (external) costs. However, some resources may already be owned by the enterprise. The costs of these resources form implicit (internal) costs. The company's own resources are usually the entrepreneurial abilities of its owner (if he manages the business himself), land and capital of the entrepreneur or shareholders.

In addition to those mentioned above, the economist also considers opportunity costs (lost opportunity costs) - this is the cost of other benefits that could be obtained with the most profitable of all possible ways of using a given resource.

Note that the costs determined by accountants do not include the opportunity cost of factors of production that are the property of the firm's owners. Despite the fact that accounting provides valuable information, company managers still base their decisions on opportunity costs, which are called economic costs, they should be distinguished from accounting costs.

Economic cost theory

Cost is the cost of everything that the seller has to give up in order to produce the product.

To carry out its activities, the company incurs certain costs associated with the acquisition of necessary production factors and the sale of manufactured products. The valuation of these costs is the firm's costs. Most economically effective method production and sale of any product is considered to be such that the company’s costs are minimized.

The concept of costs has several meanings.

Cost classification:

Individual - costs of the company itself;
social - the total costs of society for the production of a product, including not only purely production, but also all other costs: environmental protection, training of qualified personnel, etc.;
production costs - directly related to the production of goods and services;
distribution costs - associated with the sale of manufactured products.

Classification of distribution costs:

Additional distribution costs include the costs of bringing manufactured products to the final consumer (storage, packaging, packing, transportation of products), which increase the final cost of the product.
Net distribution costs are costs associated exclusively with acts of purchase and sale (payment of sales workers, keeping records of trade operations, advertising costs, etc.), which do not form a new value and are deducted from the cost of the product.

The essence of costs from the perspective of accounting and economic approaches:

Accounting costs are the valuation of the resources used in the actual prices of their sales. The costs of an enterprise in accounting and statistical reporting appear in the form of production costs.
The economic understanding of costs is based on the problem of limited resources and the possibility of their alternative use. Essentially all costs are opportunity costs. The economist's task is to choose the most optimal option for using resources. The economic costs of a resource chosen for the production of a product are equal to its cost (value) under the best (of all possible) use case.

If an accountant is mainly interested in assessing the company’s past activities, then an economist is also interested in the current and especially predicted assessment of the firm’s activities, searching for the most optimal option use of available resources. Economic costs are usually greater than accounting costs - these are total opportunity costs.

Economic costs, depending on whether the company pays for the resources used:

External costs (explicit) are costs in monetary form that a firm makes in favor of suppliers of labor services, fuel, raw materials, auxiliary materials, transport and other services. In this case, the resource providers are not the owners of the firm. Since such costs are reflected in the balance sheet and report of the company, they are essentially accounting costs.
Internal costs (implicit) are the costs of your own and independently used resource. The company considers them as the equivalent of those cash payments that would be received for an independently used resource with its most optimal use.

Let's give an example. You are the owner of a small store, which is located on premises that are your property. If you didn’t have a store, you could rent out this premises for, say, $100 a month. These are internal costs. The example can be continued. When working in your store, you use your own labor, without, of course, receiving any payment for it. With an alternative use of your labor, you would have a certain income.

The natural question is: what keeps you as the owner of this store? Some kind of profit. The minimum wage required to keep someone operating in a given line of business is called normal profit. Lost income from the use of own resources and normal profit in total form internal costs. So, from the standpoint of the economic approach, production costs should take into account all costs - both external and internal, including the latter and normal profit.

Implicit costs cannot be identified with the so-called sunk costs. Sunk costs are costs that are incurred by the company once and cannot be returned under any circumstances. If, for example, the owner of an enterprise incurs certain monetary expenses to have an inscription made on the wall of this enterprise with its name and type of activity, then when selling such an enterprise, its owner is prepared in advance to incur certain losses associated with the cost of the inscription.

There is also such a criterion for classifying costs as the time intervals during which they occur. The costs that a firm incurs in producing a given volume of output depend not only on the prices of the factors of production used, but also on which production factors are used and in what quantity. Therefore, short- and long-term periods in the company’s activities are distinguished.

Economic costs to society

In classical economic theory, a distinction is made between the costs of society and the costs of an enterprise.

The costs of society are the total costs of living and embodied labor for the production of goods.

K. Marx called them value and showed that it includes the following elements:

T = c + v + m,
where T is the cost of the product;
c is the cost of consumed means of production;
v is the cost of the required product;
m is the value of the surplus product.

Enterprise costs represent an isolated part of the cost of production, which includes c + v in monetary terms. These costs come in the form of prime costs. The cost corresponds to the accounting costs discussed above, i.e. does not take into account internal (implicit) costs.

Cost represents the costs expressed in monetary terms for the production and sale of products. The economic basis of cost is production costs.

The cost of products (works or services) of an enterprise includes costs associated with the use of natural resources, raw materials, materials, fuel, energy, fixed assets, labor resources and other costs for its production and sale in the production process.

The cost of production is an important indicator of the activity of enterprises (collective farms, state farms, construction organizations, etc.), providing control over material and labor resources. The cost of production reflects the level of technical equipment of the enterprise, the level of organization of production and labor, rational methods of production management, product quality, etc. Cost is a pricing factor. Reducing costs is the most important condition for profit growth.

There are various ways to reduce production costs. However, they should be considered in two interrelated directions: by type of cost and nature of use.

By type of cost, cost reduction reserves are divided into groups related to savings material assets, wages per unit of production, reduction and elimination of defects, maintenance and production management costs per unit of production, etc.

By the nature of their use, reserves are associated with improving production technology, updating and modernizing equipment, improving the organization of production, labor and management. Reserves for reducing production costs can be realized through certain measures that determine this reduction.

Cost reduction factors are numerous. They are combined into the following main groups:

Increasing the technical level of production;
improving the organization of labor and production;
change in the volume and structure of manufactured products.

Each of the named groups of factors for reducing the cost of production includes a system of measures that ensure resource savings (material incentives are required, it is necessary to take into account the cost structure, etc.), compliance with the production regime, established technology, labor discipline, etc. (all this excludes defects , reduces losses from downtime, accidents, decreased product quality, and industrial injuries).

Costs of the economic system

The development of economic systems is accompanied by such a unique phenomenon, which has no analogue in inanimate nature: we are talking about the existence of such information objects as institutions.

Institutions are formalized rules and informal norms that structure interactions between people within economic systems. The institutions are diverse. The most important of them are contract, property rights and human rights.

A contract is a transaction institution that represents a two- or multiple-choice choice. The agreement regulates the behavior of counterparties in situations identified by certain characteristics known to the parties, in accordance with the logic of the types of activities in which the counterparties are engaged.

Another type of economic institution is property rights, which authorize people’s behavior in relation to certain economic goods.

In the theory of property rights, there are two definitions of the category of property: one - in the spirit of Anglo-Saxon law; the other is within the framework of Romanesque law (this refers not only to French bourgeois law, but also to all legal systems of continental Europe that borrowed the “spirit” of the Napoleonic Code). In Roman law, private property was declared unlimited and indivisible. The English legal system allowed for the possibility of fragmentation of ownership (of a single object) between several persons, that is, ownership acted as a bundle of partial powers.

In real practice, as a rule, we deal with truncated property rights, when some elements of the bundle are not “assigned” to strictly defined persons. Let us remember: the process of assigning as many elements as possible from a bundle of powers to any resource (and, accordingly, the obligations arising from the exercise of these powers) to specific legal and/or individuals is called specification, and the reverse process is called attenuation of property rights. The reasons for erosion are poor protection of property rights and restrictions placed on the exercise and circulation of these rights. Property rights must be specified until the costs of this process exceed the benefits.

Thus, the evolution of property rights is the interconnected development of three processes: turnover, specification and erosion of property rights. Property as a bundle of powers is an institution of any economy, regardless of whether the English or Roman system of law dominates in a given country.

Formal rules and informal norms change in different ways. The decision to change the former must be made by the relevant authority. The latter are modified spontaneously.

The processes of establishing and functioning institutions, as well as preparing and implementing the process of changing them, are associated with costs. These costs are called transaction costs. The importance of transaction costs in the life of society can, in particular, be evidenced by their metaphorical interpretations as “the costs of operating the economic system” (K. Arrow) or as “the equivalent of friction in mechanical systems” (O. Williamson).

Transaction costs are the costs of establishing and operating institutions (compliance and enforcement of rules and regulations), as well as preparing and implementing the process of changing them.

Let's try to correlate transaction costs with other types of costs in the economy. The economic process is the turnover of economic goods. At the initial stage of circulation, material objects are involved in the “field of human society,” i.e. acquire, in addition to natural characteristics, social ones, which allows these objects to be interpreted as economic benefits. Then they begin their movement in accordance with the laws of their social nature, changing or maintaining their natural characteristics. Oil is extracted from the ground, transported to refineries, turned into gasoline, gasoline is burned in a car engine, etc.

The costs of economic turnover, determined by the natural characteristics of the good, are called transformational. Their paired category is transaction costs - the costs of economic turnover, determined by the social nature of the good, that is, by the relationships between people that have developed regarding this good, and ultimately by the institutions that structure these relationships. Indeed, the circulation of economic resources is at the same time a chain of “transactions” - interactions, transactions between people, transactions that also cost something, at least the time of their participants.

Economists for a long time did not “notice” the existence of transaction costs and built their models without taking this factor into account. The term “transaction costs” was first used in his article “The Nature of the Firm” (1937) by R. Coase, who later became a Nobel Prize laureate in economics. However, until the 60s, this term was in demand by a very small number of economists. It was only after Coase's proof of his famous theorem (1960) that the meaning of transaction costs became the object of widespread analysis.

Each enterprise incurs certain costs in the course of its activities. There are different ones. One of them involves dividing costs into fixed and variable.

The concept of variable costs

Variable costs are those costs that are directly proportional to the volume of products and services produced. If an enterprise produces bakery products, then the consumption of flour, salt, and yeast can be cited as an example of variable costs for such an enterprise. These costs will increase in proportion to the increase in the volume of bakery products produced.

One cost item can relate to both variable and fixed costs. Thus, energy costs for industrial ovens on which bread is baked will serve as an example of variable costs. And the cost of electricity for lighting an industrial building is a fixed cost.

There is also such a thing as conditionally variable costs. They are related to production volumes, but to a certain extent. At a small production level, some costs still do not decrease. If a production furnace is half loaded, then the same amount of electricity is consumed as a full furnace. That is, in this case, when production decreases, costs do not decrease. But as output increases above a certain value, costs will increase.

Main types of variable costs

Here are examples of variable costs of an enterprise:

• The wages of workers, which depend on the volume of products they produce. For example, in a bakery production there is a baker and a packer, if they have piecework wages. This also includes bonuses and rewards to sales specialists for specific volumes of products sold.
• Cost of raw materials. In our example, these are flour, yeast, sugar, salt, raisins, eggs, etc., packaging materials, bags, boxes, labels.
• are the cost of fuel and electricity that is spent on the production process. It could be natural gas, gasoline. It all depends on the specifics of a particular production.
• Another typical example of variable costs are taxes paid based on production volumes. These are excise taxes, taxes under tax), simplified taxation system (Simplified taxation system).
• Another example of variable costs is paying for services from other companies if the volume of use of these services is related to the organization's level of production. It can be transport companies, intermediary firms.

Variable costs are divided into direct and indirect

This division exists because different variable costs are included in the cost of the product differently.

Direct costs are immediately included in the cost of the product.

Indirect costs are distributed over the entire volume of goods produced in accordance with a certain base.

Average variable costs

This indicator is calculated by dividing all variable costs by production volume. Average variable costs can either decrease or increase as production volumes increase.

Let's look at the example of average variable costs in a bakery. Variable costs for the month amounted to 4,600 rubles, 212 tons of products were produced. Thus, average variable costs will be 21.70 rubles/t.

Concept and structure of fixed costs

They cannot be reduced in a short period of time. If output volumes decrease or increase, these costs will not change.

Fixed production costs usually include the following:

• rent for premises, shops, warehouses;
• utility fees;
• administration salary;
• costs of fuel and energy resources, which are consumed not by production equipment, but by lighting, heating, transport, etc.;
• advertising expenses;
• payment of interest on bank loans;
• purchase of stationery, paper;
• costs of drinking water, tea, coffee for employees of the organization.

Gross costs

All of the above examples of fixed and variable costs add up to gross, that is, the total costs of the organization. As production volumes increase, gross costs increase in terms of variable costs.

All costs, in essence, represent payments for purchased resources - labor, materials, fuel, etc. The profitability indicator is calculated using the sum of fixed and variable costs. An example of calculating the profitability of core activities: divide profit by the amount of costs. Profitability shows the effectiveness of an organization. The higher the profitability, the better the organization performs. If profitability is below zero, then expenses exceed income, that is, the organization’s activities are ineffective.

Enterprise cost management

It is important to understand the essence of variable and fixed costs. With proper management of costs in an enterprise, their level can be reduced and greater profits can be obtained. It is almost impossible to reduce fixed costs, so effective work to reduce costs can be carried out in terms of variable costs.

How can you reduce costs in your enterprise?

Each organization works differently, but basically there are the following areas of cost reduction:

1. Reducing labor costs. It is necessary to consider the issue of optimizing the number of employees and tightening production standards. An employee can be laid off, and his responsibilities can be distributed among others, with additional payment for additional work. If production volumes increase at the enterprise and the need arises to hire additional people, then you can go by revising production standards and or increasing the volume of work in relation to old employees.

2. Raw materials are an important part of variable costs. Examples of their abbreviations could be as follows:

• searching for other suppliers or changing the terms of delivery by old suppliers;
• introduction of modern economical resource-saving processes, technologies, equipment;

• stopping the use of expensive raw materials or materials or replacing them with cheap analogues;
• carrying out joint purchases of raw materials with other buyers from one supplier;
• independent production of some components used in production.

3. Reduction of production costs.

This may include selecting other rental payment options or subletting space.

This also includes savings on utility bills, which requires careful use of electricity, water, and heat.

Savings on repairs and maintenance of equipment, vehicles, premises, buildings. It is necessary to consider whether it is possible to postpone repairs or maintenance, whether it is possible to find new contractors for these purposes, or whether it is cheaper to do it yourself.

It is also necessary to pay attention to the fact that it may be more profitable and economical to narrow production and transfer some side functions to another manufacturer. Or, on the contrary, enlarge production and carry out some functions independently, refusing to cooperate with related companies.

Other areas of cost reduction may be the organization’s transport, advertising activities, reducing the tax burden, and paying off debts.

Any enterprise must take into account its costs. Work to reduce them will bring more profit and increase the efficiency of the organization.

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