It is almost impossible to make a clear division of costs into variable and fixed in accounting, since some of them are conditionally fixed (semi-fixed) and conditionally variable (semi-variable). Conditional variables (conditionally constant) Costs contain both variable and fixed components. As an example, you can use the payment for the use of the telephone, consisting of a fixed subscription fee (fixed part) and payment for long-distance calls (variable term).
Any costs in general view can be represented by the formula:
Y \u003d a + bX, (1.4.)
where Y - total costs, rub.;
a - their constant part, independent of production volumes, rub.;
b - variable costs per unit of output (cost response factor), rub.;
X - an indicator that characterizes the business activity of the organization (volume of production, services rendered, turnover, etc.) in natural units of measurement.
If the constant part of the costs is absent in this formula, i.e. a = 0, then these are variable costs. If the cost response factor (b) takes on a zero value, then the analyzed costs are permanent.
For management purposes - evaluating the effectiveness of an enterprise, analyzing its break-even, flexible financial planning, making short-term management decisions and solving other issues - it is necessary to describe the behavior of costs by the above formula, i.e. divide them into fixed and variable parts.
A general description of the costs in relation to the volume of production and sale of products is presented in table 2.
Table 2. Classification of costs in relation to the volume of production
|
Classification group |
Description |
Approximate list of costs |
|
|
Permanent |
Provide management of production and activities of the enterprise as a whole, do not respond to changes in production volume |
Depreciation of buildings, structures, general business equipment, the cost of repairing these types of fixed assets, maintenance of buildings, structures, remuneration of the management apparatus, labor protection costs, etc. |
|
|
Variables |
Direct participation in technological process, change along with the change in the volume of production |
Remuneration of the main production workers, the cost of raw materials, materials, process fuel, motor energy, purchased semi-finished products |
|
|
Conditionally permanent |
Associated with the maintenance and management of production, weakly responsive to changes in production volume, but change under the influence of its change |
Remuneration of labor of auxiliary workers, managers of shops and production sites, current repair of equipment, depreciation of special. tools and fixtures, etc. |
|
|
Conditional Variables |
They form the basis of production costs, do not always change in proportion to changes in the volume of production |
Same as variables, but with changes in labor productivity, rational use of materials and waste, improvement of production conditions |
In general, all types of costs can be divided into two main categories: constants (conditional-constant) and variables (conditional-variables).
Fixed (conditionally fixed) costs - these are expenses that remain relatively constant during the budget period, regardless of changes in sales volumes (eg, management expenses, depreciation). In reality, these costs are not literally fixed. They increase along with the expansion of business activities (for example, with the emergence of new products, new businesses, branches or representative offices in other regions) at a slower pace than the growth in sales volumes, or grow in leaps and bounds. That is why they are called conditionally permanent.
Variable (conditionally variable) costs- these are expenses that change in direct proportion in accordance with the increase or decrease in the total turnover (sales proceeds). These costs are directly related to the enterprise's operations for the purchase and delivery of products to consumers (the cost of purchased goods, raw materials, components, some processing costs, such as electricity, etc.). They are called conditional variables because the directly proportional dependence on the volume of sales actually exists only for the time being or in a certain period.
In the theory of financial management, it is also customary to single out such two categories as direct and overhead costs. Here, the separation criterion is not the procedure for accruing (rationing) these costs in conjunction with changes in sales volume, but the procedure for attributing various categories of costs to the cost of production.
Direct costs- these are the costs that are directly and fully related to the cost of this product. They are directly related to economic activity and form the cost of production (the cost of purchased raw materials, materials, components, the cost of wages for their processing and production services).
Overheads- these are expenses indirectly related to the production of this product, business or economic activity of the company, were a condition for its existence as an organization.
The main criterion for the distribution of expenses by main categories is their economic content, and not their place in the accepted accounting system.
In the literature on financial management there is also a more detailed classification of costs with the allocation of semi-variable and semi-fixed costs.
Semi-variable costs have the features of both fixed and variable costs, i.e., they change depending on the turnover at a higher rate than constant ones, but not in direct proportion, like variables. These costs are usually recorded as overheads (some business expenses, such as advertising costs).
It should always be remembered that there is no single, universal criterion for classifying specific production costs as direct or overhead (fixed) costs. We can limit ourselves to a simple statement of the fact that direct costs are more of an accounting category, while variables are a category of financial planning.
In budgeting, it is important to take into account (plan, normalize, control) the most important (critical) cost items for this business. However, this problem is aggravated by the fact that for each individual enterprise or firm, even in the same industry or region, a variety of resources can act as critical ones. What resources (types of costs or expenses) should be allocated in the budget of income and expenses as separate items, for which operating budgets should be drawn up - all this depends entirely on the leaders of the company.
Direct costs- these are all costs that can be traced and attributed to the product, customer, contract
In overhead all types of fixed or semi-fixed costs are included, that is, those costs whose value does not depend in direct proportion to the volume of sales. Depending on the type of business, a specific set of expenses related to overheads is accepted, but in general, three main groups of costs are usually distinguished here:
A) management expenses is the cost of wages
employees of the management apparatus (ITR and AUP) of an enterprise or firm, their structural divisions, support staff, pre
staffing, travel expenses;
b) commercial- expenses for the sale and distribution, promotion of the product on the market and its delivery to the consumer;
V) other waybills- expenses for servicing loans and borrowings, depreciation of fixed assets and intangible assets, etc.
Management expenses can be determined by the following methods.
1. The actual costs for personnel remuneration, rent, repairs, etc. for past periods are determined (based on a plan-fact analysis) and then their amount is taken as a limit for the upcoming budget period (planning from what has been achieved).
2. The share of management expenses (also based on historical analysis) can be set as a fixed percentage of sales (net net sales) in order to allow managers to quickly maneuver the resources at their disposal.
3. The share of management expenses in the volume of conditionally net production is determined (the amount of the fund wages and book profit) separate business for past periods.
Selling expenses are determined, as a rule, depending on the marketing strategy, while the following methods are usually used:
As a percentage of turnover;
Per unit of goods sold;
Based on market research (value advertising campaign);
Total expenses based on historical trends.
share corporate The management or selling expenses of an individual business can be established based on the business' share of:
The company's total sales;
The total number of employees;
the total payroll fund,
The total assets of the company.
The same costs for companies in the same industry can be classified as variable in one case, and as fixed costs in the other. The only universal criterion here can be only one - whether these costs change in proportion (directly proportional) to changes in sales volumes or not.
Cost classification for decision making and planning
Because the management decisions tend to be forward-looking, management needs detailed information about expected costs and revenues. In this regard, when performing calculations related to making a decision, the following types of costs are distinguished:
variable, constant, conditionally constant - depending on the response to changes in production (sales) volumes;
expected costs taken into account and not taken into account in the calculations when making decisions;
sunk costs (costs of the past period);
imputed costs (or lost profits of the enterprise);
planned and unplanned costs
incremental and marginal costs
Variable costs are costs that change in direct proportion to changes in output (or other cost factor).
Fixed costs are costs that do not change with changes in output.
Conditionally variable (Mixed costs, conditionally fixed) - costs that consist of elements of both variable and fixed costs. An example is the payment for the use of a telephone, consisting of a fixed subscription fee (a fixed part) and a payment for long-distance calls (a variable component), wage employee, consisting of a fixed salary and a variable part -% for additional sales, electricity costs.
To describe the behavior of variable costs in management accounting, a special indicator is used - the cost response coefficient (Krz). It characterizes the ratio between the rate of change in costs and the growth rate of business activity of the enterprise and is calculated by the formula:
where Y is the growth rate of costs, %
X - the growth rate of business activity of the company,%
As noted above, costs are considered fixed if they do not respond to changes in production volumes. For example, the cost of renting a car would not change if output increased by 30%. In this case
Thus, a zero value of the cost response coefficient indicates that we are dealing with fixed costs.
A variation of variable costs are proportional costs. They increase at the same rate as the business activity of the enterprise. For example, if output is increased by 30%, proportional costs will increase by the same proportion. Then
Thus, Krz=1 characterizes costs as proportional.
Another type of variable costs are degressive costs. Their growth rates lag behind the growth rate of the firm's business activity. Assume that a 30% increase in output increases costs by 15%. Then
So the case when 0<Крз<1, свидетельствует о том, что затраты являются дегрессивными.
Costs that grow faster than the business activity of the enterprise are called progressive costs. As an example, we can cite the following relationship: an increase in production by 30% is accompanied by an increase in costs by 60%. Then
Therefore, when Kp > 1, the costs are progressive.
The economic essence of variable and fixed costs can be illustrated by an example.
Conditionally fixed and conditionally variable costs
In general, all types of costs can be divided into two main categories: fixed (conditionally fixed) and variable (conditionally variable). According to the legislation of the Russian Federation, the concept of fixed and variable costs is present in paragraph 1 of Article 318 of the Tax Code of the Russian Federation.
Semi-fixed costs(English) total fixed costs) - an element of the break-even point model, which is the costs that do not depend on the size of the volume of output, as opposed to variable costs, which add up to total costs.
In simple words, these are expenses that remain relatively unchanged during the budget period, regardless of changes in sales volumes. Examples are: management expenses, expenses for rent and maintenance of buildings, depreciation of fixed assets, expenses for their repair, time wages, on-farm deductions, etc. In reality, these expenses are not permanent in the literal sense of the word. They increase with an increase in the scale of economic activity (for example, with the emergence of new products, businesses, branches) at a slower pace than the growth in sales volumes, or grow in leaps and bounds. Therefore, they are called conditionally constant.
This type of cost largely overlaps with overhead, or indirect costs associated with the main production, but not directly related to it.
Detailed examples of semi-fixed costs:
Variable (conditionally variable) costs(English) variable costs) are expenses that change in direct proportion in accordance with an increase or decrease in the total turnover (sales proceeds). These costs are associated with the operations of the enterprise for the purchase and delivery of products to consumers. This includes: the cost of purchased goods, raw materials, components, some processing costs (for example, electricity), transportation costs, piecework wages, interest on loans and borrowings, etc. They are called conditional variables because the direct proportional dependence on sales volume actually exists only in a certain period. The share of these expenses may change in some period (suppliers will raise prices, the rate of inflation of selling prices may not coincide with the rate of inflation of these costs, etc.).
The main sign by which you can determine whether costs are variable is their disappearance when production is stopped.
Examples of Variable Costs
In accordance with IFRS standards, there are two groups of variable costs: production variable direct costs and production variable indirect costs.
Production variable direct costs- these are expenses that can be attributed directly to the cost of specific products on the basis of primary accounting data.
Production variable indirect costs- these are expenses that are directly dependent or almost directly dependent on changes in the volume of activities, however, due to the technological features of production, they cannot or are not economically feasible to be directly attributed to manufactured products.
Examples direct variables costs are:
Examples indirect variables costs are the costs of raw materials in complex production. For example, when processing raw materials - coal - coke, gas, benzene, coal tar, ammonia are produced. When milk is separated, skimmed milk and cream are obtained. In these examples, it is possible to divide the costs of raw materials by types of products only indirectly.
Break even (BEP - break even point) - the minimum volume of production and sales of products at which costs will be offset by income, and in the production and sale of each subsequent unit of production, the enterprise begins to make a profit. The break-even point can be determined in units of production, in monetary terms, or taking into account the expected profit margin.
Break-even point in monetary terms- such a minimum amount of income at which all costs are fully paid off (the profit is equal to zero).
BEP= * Sales proceeds
Or what is the same BEP= = *P (see below for a breakdown of the values)
Revenue and expenses must refer to the same time period (month, quarter, six months, year). The break-even point will characterize the minimum allowable sales volume for the same period.
Let's look at the example of a company. Cost analysis will help you visualize the BEP:
Break-even sales volume - 800 / (2600-1560) * 2600 \u003d 2000 rubles. per month. The actual sales volume is 2600 rubles/month. exceeds the break-even point, this is a good result for this company.
The break-even point is almost the only indicator about which one can say: “The lower the better. The less you need to sell to start making a profit, the less likely you are to go bankrupt.
Break-even point in units of production- such a minimum quantity of products at which the income from the sale of this product completely covers all the costs of its production.
Those. it is important to know not only the minimum allowable revenue from sales as a whole, but also the necessary contribution that each product should bring to the total profit box - that is, the minimum required number of sales of each type of product. To do this, the break-even point is calculated in physical terms:
VER = 
or VER =
=
The formula works flawlessly if the company produces only one type of product. In reality, such enterprises are rare. For companies with a large range of production, the problem arises of allocating the total amount of fixed costs to individual types of products.
Fig.1. Classic CVP Analysis of Cost, Profit and Sales Behavior
Additionally:
BEP (break even point) - break even,
TFC (total fixed costs) - the value of fixed costs,
VC(unit variable cost) - the value of variable costs per unit of output,
P (unit sale price) - the cost of a unit of production (realization),
C(unit contribution margin) - profit per unit of production without taking into account the share of fixed costs (the difference between the cost of production (P) and variable costs per unit of production (VC)).
CVP-analysis (from the English costs, volume, profit - expenses, volume, profit) - analysis according to the "costs-volume-profit" scheme, an element of managing the financial result through the break-even point.
overhead costs- the costs of doing business that cannot be directly related to the production of a particular product and therefore are distributed in a certain way among the costs of all manufactured goods
Indirect costs- costs that, unlike direct costs, cannot be directly attributed to the manufacture of products. These include, for example, administrative and management costs, staff development costs, costs in the production infrastructure, costs in the social sphere; they are distributed among various products in proportion to a reasonable base: the wages of production workers, the cost of materials used, the volume of work performed.
Depreciation deductions- an objective economic process of transferring the value of fixed assets as they wear out to a product or service produced with their help.
In the concept of management accounting, costs occupy an important place, since their analysis is mandatory in the course of current activities. Semi-fixed costs are general business costs for advertising, as well as those that do not depend on the volume of production. Every organization has this part of the costs, so its study and optimization make it possible to increase profits.
To analyze the costs of the enterprise was easier and more efficient, it is customary to classify them according to certain criteria. This division allows you to identify their relationship and calculate how much each individual affects the cost of production and the profitability of the business as a whole.
In order for the cost structure of an enterprise to have order, it is necessary to effectively maintain accounts and link costs to objects. For this purpose, expenses are classified according to similar characteristics. The choice of differentiation determines the object: if it changes, this may entail a change in the cost category.
Classification types:
At each enterprise, costs can be differentiated in different ways so that the cost structure is clear and understandable. Management accounting allows you to choose the most optimal method. It should be noted that all costs are grouped by types of costs, cost carriers and the place where they arise.
By type, costs can be divided in accordance with economically homogeneous factors and costing items.
Cost carriers are products, activities or services. This category of expenses is necessary in order to determine the unit cost of production.
Costs and their classification also depend on the place of occurrence: it can be production shops or other divisions. It is advisable to group the costs in accounting so that the information is as accessible as possible for the analysis of costs and the definition of a savings strategy.
Enterprises distinguish between the main types of costs:
Semi-fixed costs are those that do not depend on the time period and production volumes. These costs increase with the increase in the scale of economic activity, but at a slower pace. In some cases, their growth tends to jump.
Simply put, semi-fixed costs are those that arise when the volume of production has increased dramatically, for example, the cost of additional equipment.
Conditionally variable costs include costs associated with the purchase and sale of products. Their value depends on many factors: supplier prices, and others.
Calculated as the sum of conditionally variable and conditionally fixed costs.
In relation to the environment, costs are classified into internal and external. He finances the internal ones on his own, and entrusts the care of external organizations to other organizations or society as a whole.
The grouping of costs by directions and articles is used to calculate the costs of manufacturing and selling goods or services. To make it more convenient to calculate losses and profits, analyze the cost and set prices, a calculation sheet is compiled. According to the items, the costs are divided depending on what role they play in the enterprise and for what needs they are used.
Indirect or divided depending on the method of attributing costs to cost.
Indirect costs are those costs that are not charged per unit of output, but are accumulated in the accounts. After that, they are included in the cost price by calculation. As a rule, indirect costs are taken into account at the places of their occurrence, and then distributed among the types of products. These include the salary of temporary workers or the cost of acquiring additional materials.
Direct costs are calculated on the basis of primary documents for each unit of production. All costs that relate to a particular product are called direct: the purchase of raw materials and materials, the salary of the main workers, as well as any others. When calculating an object, it is necessary to understand that the greater the share of direct costs, the more accurately you can calculate the cost per unit of goods.
According to the technical and economic purpose, the costs can be divided as follows:
It is customary to refer to the main costs those that are directly related to the production process or the provision of services. These are the costs necessary to carry out the production and release of a specific product: the cost of purchasing materials, the cost of electricity, fuel, wages, and so on.
General production and business expenses are considered indirect. They are related to the maintenance of structural divisions of the enterprise.
In order to analyze the activities of the enterprise as a whole and evaluate the finished product, the cost structure of the enterprise is as follows: expenses are divided into incoming and expired. Incoming funds include acquired funds that are used to make a profit. If over time they have lost relevance or been used up, they are transferred to expired costs.
On the balance sheet asset, input costs can be shown as goods, finished goods, inventory, or work in progress.
Costs that relate to social or managerial development programs are usually called discretionary. To get the average unit cost, you need to add the unit fixed and variable costs.
Depending on the change in production volumes, non-fixed costs can be divided into types:
Conditionally variable and conditionally fixed costs are important indicators in any business, so it is necessary to clearly understand the mechanism of their formation.
