What are variable and fixed expenses. Fixed and variable costs. See what “Variable costs” are in other dictionaries
Financial planning is necessary for the normal functioning of any company, forecasting production efficiency and profitability of all areas of activity. Its basis is a detailed analytical picture of all income received and costs incurred, which are classified as fixed and variable costs. This article will tell you what these terms mean, what criteria are used to distribute expenses in an organization, and why there is a need for such a division.
What are costs in production
The components of the cost of any product are costs. They all differ in the characteristics of their formation, composition, and distribution, depending on the production technology and available capacities. It is important for the economist to divide them according to cost elements, corresponding items and place of origin.
Expenses are classified into different categories. For example, they can be direct, that is, incurred directly in the production process of the product (materials, machine operation, energy costs and wages of shop personnel), and indirect, proportionally distributed over the entire range of products. These include costs that ensure the maintenance and functionality of the company, for example, the uninterruption of the technological process, utility costs, salaries of the auxiliary and management units. 
In addition to this division, costs are divided into fixed and variable. It is these that we will consider in detail.
Fixed production costs
Costs, the value of which does not depend on the volume of products produced, are called constant. They usually consist of costs vital for the normal implementation of the production process. These are costs for energy resources, rent of workshops, heating, marketing research, AUR and other general expenses. They are permanent and do not change even during short-term downtime, because the lessor charges rent in any case, regardless of the continuity of production.
Despite the fact that fixed costs remain unchanged over a certain (specified) period of time, fixed costs per unit of output change in proportion to the volume produced. 
For example, fixed costs amounted to 1000 rubles, 1000 units of product were produced, therefore, each unit of production has 1 ruble of fixed costs. But if not 1000, but 500 units of a product are produced, then the share of fixed costs in a unit of goods will be 2 rubles.
When fixed costs change
Note that fixed costs are not always constant, since companies develop production capacities, update technologies, increase space and the number of employees. In such cases, fixed costs also change. When conducting economic analysis, you need to take into account short periods when fixed costs remain constant. If an economist needs to analyze a situation over a long period of time, it is more appropriate to break it down into several short time periods.
Variable costs
In addition to the fixed costs of the enterprise, there are variables. Their value is a value that changes with fluctuations in output volumes. Variable expenses include:
According to the materials used in the production process;
According to the wages of shop workers;
Insurance deductions from payroll;
Depreciation of workshop equipment;
On the operation of vehicles directly involved in production, etc. 
Variable costs vary in proportion to the quantity of goods produced. For example, doubling production volume is impossible without doubling total variable costs. However, the cost per unit of production will remain unchanged. For example, if the variable costs for producing one unit of product are 20 rubles, it will take 40 rubles to produce two units.
Fixed costs, variable costs: division into elements
All costs - fixed and variable - constitute the total costs of the enterprise. 
To correctly reflect costs in accounting, calculate the sales value of a manufactured product and carry out an economic analysis of the company’s production activities, all of them are taken into account according to cost elements, dividing them into:
- supplies, materials and raw materials;
- staff remuneration;
- insurance contributions to funds;
- depreciation of fixed and intangible assets;
- others.
All costs allocated to elements are grouped into cost items and accounted for as either fixed or variable.
Example of cost calculation
Let us illustrate how costs behave depending on changes in production volume.
| Issue volume | fixed costs | variable costs | general expenses | unit price |
| 0 | 200 | 0 | 200 | 0 |
| 1 | 200 | 300 | 500 | 500 |
| 2 | 200 | 600 | 800 | 400 |
| 3 | 200 | 900 | 1100 | 366,67 |
| 4 | 200 | 1200 | 1400 | 350 |
| 5 | 200 | 1500 | 1700 | 340 |
| 6 | 200 | 1800 | 2000 | 333,33 |
| 7 | 200 | 2100 | 2300 | 328,57 |
Analyzing the change in the price of a product, the economist concludes: fixed costs did not change in January, variables increased in proportion to the increase in the volume of product output, and the cost of the product decreased. In the presented example, the decrease in the price of the product is due to the constant costs of fixed costs. By predicting changes in costs, the analyst can calculate the cost of the product in the future reporting period.
Dividing costs into fixed and variable is one of the most important tasks of financial departments of companies. This directly affects the calculation of cost, and therefore the financial result of the enterprise. Therefore, management decisions made by management depend on the chosen methodology for dividing costs into fixed and variable.
Fixed costs
As you know, fixed costs do not depend on production volumes and business activity. And even if the company does not produce or sell anything, the volume of such expenses remains unchanged. This factor, at first glance, is negative. But the positive thing is that if the company reaches a high level of production and sales, then the amount of such costs per unit of production is significantly reduced. Which causes quite rapid growth in profits. After all, it is influenced by even a minimal increase in revenue. .
Changing the volume of output does not affect the amount of fixed costs.
Fixed costs include rent, employee salaries, depreciation, rental expenses, etc. And if the share of such costs in the company’s total expenses is quite large, then it is necessary to take all measures to reduce them. But this is quite difficult to do. The fact is that the lack of connection with production volume deprives the company of levers to control the size of fixed costs. In such a situation, only drastic measures will help. Such as reduction of jobs or production and retail space.
Therefore, the company's management needs to redistribute all possible costs from fixed to variable. This will allow you to control the size of a significant part of your expenses by controlling production volume and revenue.
Stable market conditions allow companies to “stay afloat” even with a significant share of fixed costs.
Variable costs
Variable costs include those costs, the size of which depends on the volume of products produced. It is easier to control their size than permanent ones. After all, such expenses go towards the actual actual activities of the company. They arise only at the start of production and change proportionally.
If such costs are calculated per unit of production, then their size will remain unchanged. Thus, during a crisis, company management can significantly reduce variable costs by reducing production volumes. An example of variable costs are: fuels and lubricants, materials, utility costs, piecework wages, etc.
Mixed costs
But not all costs can be clearly classified as fixed or variable. There is a separate group for them - mixed. This includes, for example, telephone communications. Such services are provided in the form of a fixed tariff and a variable component. That is why it cannot be unambiguously classified into the group of constants or variables. This is only possible if accounting analytics allows you to divide the amount of expenses into two parts. If this is not possible, then you will have to be classified in the mixed group.
How it will help: Find out which expenses should be cut. It will tell you how to audit business processes and inventory costs, and how to motivate employees to save.
When analyzing mixed costs, it is necessary to use methods that allow you to separate the constant and variable parts from them. The simplest of them are considered to be the method of analyzing accounts, the graphical method, and the “highest and lowest points” method. For a more thorough study of cost behavior, statistical and economic-mathematical methods are used (least squares method (regression analysis), correlation method, etc.).
Consequently, the problem of dividing costs into constant and variable ones can be solved, and modern computer technology and software products can provide not only a quick and labor-intensive solution, but also good quality information for making management decisions.
Analysis of the relationship "costs - production volume - profit"
Analysis of the relationship "costs - volume - profit" (break-even analysis, CVP analysis) - analysis of cost behavior, which is based on the relationship between costs, revenue, production volume and profit - is a planning and control tool. These relationships form the basic model of financial activity, which allows the manager to use this tool in short-term planning and evaluation of alternatives.
By analyzing the relationship “costs - volume - profit”, the point of equilibrium sales volume is determined - the financial line at which sales revenue exactly corresponds to the value of total costs.
In this case, graphical methods and analytical calculations are used.
To carry out graphical analysis in a rectangular coordinate system, a graph of the dependence of costs and revenue on the number of units of output is constructed.
At the point of critical production volume (break-even point) there is no profit and no loss. To the right of it is the profit area (zone). For each value (number of units of production), net profit is determined as the difference between the amount of marginal income and fixed costs. To the left of the critical point there is an area (zone) of losses formed as a result of the excess of the value of fixed expenses over the value of marginal income.
It should be noted the assumptions used in constructing the cost-volume-profit relationship graphs:
- 1) sales (sales) prices are unchanged, and, thus, the relationship “revenue - production / sales volume” is proportional;
- 2) prices for consumed production resources and the norms of their consumption per unit of production are unchanged, and, thus, the relationship “variable costs - production / sales volume” is proportional;
- 3) fixed costs are those in the considered range of business activity;
- 4) production volume is equal to sales volume.
So, the value of the cost-volume-profit relationship graph lies in the fact that it is a simple and visual means of presenting analytical calculations; with its help, managers can assess the enterprise’s ability to achieve or exceed break-even production volume. However, the graph also has weaknesses: when constructing it, many assumptions are made, which is why the analysis results generated with its help are quite conditional.
To analyze the relationship "cost - volume - profit" the formula is used
P = SUM Zper. + Zpost. + Pr, (2.6)
where P is sales in value terms (revenue);
SUM Zper. - total variable costs;
Zpost. - fixed costs;
Pr - profit.
The critical point (break-even point) can also be represented by switching to natural units of measurement. To do this, we introduce additional notation:
q - sales volume in physical terms;
qcrit. - critical sales volume in natural units;
p - unit price;
Zper. - variable costs per unit of production.
Thus, P = p x q; SUM Zper. = Zper. x q.
At the break-even point, profit is zero. That is, formula (2.6) will take the form:
R? q crit. = Z lane ? q crit. + Z post. (2.6.1)
Transforming the previous formula, we have:
q crit. = 3 post. / (p - W lane). (2.7)
Continuing analytical calculations, we can calculate:
the critical level of fixed costs, which is calculated using the original revenue formula at zero profit:
P = W post. + SUM Z lane, (2.8)
W constant critical = P - SUM Z per. = pq - SUM Z per. X
x q = q ? (p - W lane); (2.9)
critical selling price, for which the formula is used:
Crit.p = W post. / q + Z lane; (2.10)
Level of minimum marginal income - marginal income is a financial indicator representing the difference between revenue from sales (sales) and the amount of variable costs associated with the amount of sales (or the minimum level of profitability as the ratio of marginal income to revenue), if the amount of fixed costs and expected revenue:
MD in% of revenue = Zpost. / P x 100%. (2.11)
A logical continuation of the process of finding the break-even point is profit planning. To determine the volume of sales at which it is possible to obtain the required profit, the formula is used
q plan. = (W post. + Right plan.) / (r - W lane), (2.12)
where Pr plan. - the profit necessary for the enterprise.
Formula (2.11) can be used to analyze situations where the business activity of an enterprise is difficult or impossible to measure in natural units, and resort to monetary units should be used. Very often this occurs in service organizations that produce fairly diverse work and services. In such cases, the practice is to calculate not the break-even point, but the amount of revenue that needs to be received to cover costs. When carrying out the calculation, the assumption is made that all services provided by the organization have an average level of marginal income - MD average. (in% of revenue). Based on this, the critical level of revenue is determined:
R crit. = 3 post. / MD avg. (in % of revenue) ? 100%. (2.13)
In Western enterprises there is no single classification of costs; each company has the right to develop its own range of costs depending on the information required by enterprise managers. A distinctive feature of such classifications is their simplicity, confusion of various grouping characteristics, substitution of one concept for another (for example, indirect, overhead and fixed costs), which can be explained by pragmatism.
Let's consider which classifications used in the West are relevant for organizing management accounting at a Russian enterprise.
As a rule, when classifying costs by element in Western management accounting systems, three aggregated elements of costs are distinguished: direct materials, direct wages and overhead costs. This classification is closest to the traditions of domestic accounting and analysis, since some analogy can be found between it and the classification of costs by item, used in Russian practice.
In relation to a specific responsibility center, costs can be controllable and uncontrollable. Controllability means the manager’s ability to influence the amount of costs (for example, the marketing department can influence the costs of an advertising campaign, the head of a production department can influence the use of direct labor in terms of labor intensity and productivity and loss of working time).
The division of costs into controllable and uncontrollable is purely individual, that is, it is possible only for a specific responsibility center of a particular enterprise. Let us also note that such a division of costs is very conditional (for example, an increase in costs for fuel and lubricants may mean that the driver either uses the car in violation of operating rules, or uses it for personal purposes, but it may also arise due to an unplanned increase in prices for fuel).
It should be noted that not all costs are equivalent for decision making, hence the division of costs into relevant (those that are significant for a particular decision) and irrelevant. The given terms are relatively new for Russian management accounting practice. Relevant costs can be called costs that vary depending on the chosen solution option. Examples of relevant costs could be:
- - variable costs per unit of production, that is, the costs that arise during the production of each additional unit of production. Used, for example, when considering several product design options, comparing the profitability of several types of products;
- - incremental costs (differential cost, incremental cost) - the difference between the costs associated with one option of action and the costs associated with another option of action. This concept is most often used when choosing between two competing investment projects, while the costs common to both projects are ignored;
- - opportunity cost or opportunity cost - marginal income lost as a result of choosing one option over another.
The decision-making process taking into account relevant costs includes the following steps:
- - combining all possible costs associated with a specific solution option;
- - exclusion of past costs;
- - elimination of costs common to all options;
- - selection of the best option based on an assessment of relevant costs.
This classification of costs should be known and find practical application in the activities of not only management accounting specialists, but also enterprise managers, since it allows in any situation to separate factors that influence and do not influence decision making in order to select the optimal course of action.
We examined the main classifications of costs that occur both in Russian theory and practice, and in Western ones. All of them are, to a certain extent, necessary for setting up a management accounting system; they require study and implementation in management practice at Russian enterprises.
Cost centers are the structural units of an enterprise that cause costs, including the economic processes occurring within them.
The choice of cost centers as accounting objects is caused mainly by:
- · the need to assess the past, control the present and plan the future activities of the structural units of the enterprise;
- · the need to calculate the cost of manufactured products, since only part of the costs incurred can be attributed to products on a direct basis. The remaining costs must first be collected where they arise.
It is customary to distinguish the following principles for identifying cost centers:
- - organizational - in accordance with the internal organizational hierarchy of the enterprise (workshop, site, team, management, department, etc.);
- - business areas - in accordance with the category of products produced;
- - regional - in accordance with territorial isolation;
- - functional - in accordance with participation in the business processes of the enterprise (supply, main production, auxiliary production, sales, research and development, etc.);
- - technological - in accordance with the technological features of production.
In practice, these principles can be found in combined form.
A cost carrier is understood as a product (part of a product, group of products) of varying degrees of readiness (fully finished or having undergone only part of the technological operations, processing stages, phases), which in the process of its production and sales causes costs and to which these costs can be attributed directly sign.
The choice of cost objects as accounting objects is explained:
- · the need for operational production management - the amount of costs caused by carriers is used for planning and control;
- · the need to calculate the cost of manufactured products.
To the principles of grouping in relation to cost objects that are common to all accounting objects, one more specific one should be added: since the allocation of cost objects as accounting objects is also associated with the need to calculate costs, the grouping of cost objects should be agreed upon with the objects of calculation. The object of calculation is understood as a product in a broad sense, the cost of which should be calculated.
Cost objects can correspond to costing objects, be narrower (that is, be part of a costing object with several other objects), or wider (include several costing objects). If a cost object includes several costing objects, this inevitably leads to indirect cost allocation, the results of which are always controversial. Therefore, when grouping cost objects, you should strive to ensure that they correspond to or are included in the costing objects.
Among the main features of the classification of cost objects are:
- - economic (material) essence - products, works, services;
- - type (category) of production - main, auxiliary;
- - hierarchical relationship of products - type of product, type of product, design option, grade, standard size;
- - degree of readiness - product after sequential technological operations;
- - availability of communication with the buyer - order number.
Methods for organizing cost accounting and the list of primary documentation used for accounting are determined by a number of factors. The most important of them include the features of the technological process and the type of resource used in the production process.
As an example, we will consider possible approaches to organizing accounting for the use of material and labor resources.
Return back to
Costs are usually divided into fixed and variable costs. Fixed costs are those costs that do not depend on the volume of production and sales, they are unchanged, and do not constitute the direct cost of products, goods, services. Variable costs are costs that constitute the direct cost of production, and their size directly depends on the volume of production and sales of products, goods or services. Fixed and variable costs, examples of them are very diverse, they depend on the types and areas of activity. Today we will try to present fixed and variable costs in more detail using examples.
Fixed costs include the following types:
Rent. The most striking example of fixed costs that occurs in any type of business activity is rental payments. An entrepreneur, renting an office, workshop, warehouse, is forced to pay regular rental payments, regardless of how much he earned, sold goods or provided services. Even if he has not received a single ruble of income, he will still have to pay the rental price, otherwise the contract with him will be terminated and he will lose the rented space.
salaries of administrative staff, management, accounting, wages of support staff (system administrator, secretary, repair service, cleaner, etc.). The calculation and payment of such wages also does not depend in any way on sales volumes. This also includes the salary portion of sales managers, which is accrued and paid regardless of the sales manager’s performance.
The percentage or bonus part will be classified as variable costs, since it directly depends on volumes and sales results. Examples of fixed costs include the salary portion of the wages of the main workers, which is paid regardless of the volume of production, or payments for forced downtime.
depreciation deductions. Accrued depreciation amounts are also a classic example of fixed costs.
payment for services related to the general management of the enterprise. This includes utility costs: payment for electricity, water, communication services and the Internet. Services of security organizations, bank services (cash and settlement services) are also examples of fixed expenses. Advertising agency services.
bank interest, interest on loans, discounts on bills.
tax payments, the tax base of which is static taxation objects: land tax, enterprise property tax, unified social tax paid on wages accrued on salaries, UTII is a very good example of fixed costs, various payments and fees for permitting trade, environmental fees, transport tax.
It is not difficult to imagine examples of variable costs associated with the volume of production, sales of goods and services; these include:
Piecework wages for workers, the amount of which depends on the amount of products produced or services provided.
the cost of raw materials, materials and components used to produce products, the cost of purchased goods for subsequent resale.
the amount of interest paid to sales managers from the results of sales of goods, the amount of bonuses accrued to personnel based on the results of the enterprise’s activities.
amounts of taxes, the tax base of which is the volume of production and sales of products, goods: excise taxes, VAT, tax under the simplified tax system, unified social tax, paid on accrued premiums, interest on sales results.
the cost of services of third-party organizations, paid depending on sales volumes: services of transport companies for the transportation of products, services of intermediary organizations in the form of agency or commission fees, sales outsourcing services,
the cost of electricity, fuel, in manufacturing enterprises. These costs also depend on the volume of production or provision of services; the cost of electricity used in an office or administrative building, as well as the cost of fuel for cars used for administrative purposes, are considered fixed costs.
As we have already said, knowledge and understanding of the essence of fixed and variable costs is very important for competent management of a business and its profitability. Due to the fact that fixed costs do not depend on the volume of production and sales of goods, they are a certain burden for the entrepreneur. After all, the higher the fixed costs, the higher the break-even point, and this in turn increases the risks of the entrepreneur, since in order to cover the amount of large fixed costs, the entrepreneur must have a large volume of sales of products, goods or services. However, in conditions of fierce competition, it is very difficult to guarantee the constancy of the occupied market segment. This is achieved by increasing advertising and promotion costs, which are also fixed costs. It turns out to be a vicious circle. By increasing expenses on advertising and promotion, we thereby increase fixed costs, while at the same time we stimulate sales volume. The main thing here is that the efforts of the entrepreneur in the field of advertising are effective, otherwise the entrepreneur will suffer a loss.
This is especially important for small businesses, since the safety margin of a small business entrepreneur is low, he has limited access to many financial instruments (credits, loans, third-party investors), especially for a novice entrepreneur who is just trying to grow his business. Therefore, for small businesses, you should try to use low-cost methods of business promotion, such as guerrilla marketing, non-standard advertising. It is necessary to try to reduce the level of fixed costs, especially at the initial stage of development.
53. Fixed and variable costs
Fixed costs- costs that do not change depending on production volume. The source of fixed costs (overhead) is the cost of fixed resources.
The latter remain unchanged throughout the short-term period, therefore fixed costs do not depend on the volume of output. The plant may be idle because his products are not sold; mine - not working due to workers' strikes.
But both the plant and the mine continue to incur fixed costs: they must pay interest on loans, insurance premiums, property taxes, pay wages to cleaners and watchmen; make utility payments.
The lack of connection between output levels and fixed costs does not reduce the influence of the latter on the production process.
To understand this, it is enough to list the types of fixed costs.
These include many costs that determine the technological level of production. These are the costs of fixed capital in the form of depreciation, rental payments; expenses for R&D and other know-how; payments for the use of patents.
Fixed costs are some costs of “human capital”, including payments for the “backbone” of personnel: key managers, accountants or even skilled craftsmen - workers in rare specialties. Expenses for training and advanced training of employees can also be considered fixed costs.
Fixed costs do not depend on production volume.
Source variable costs are the costs of variable resources. The bulk of these costs are associated with the non-use of working capital.
They include the costs of purchasing raw materials, supplies, components and semi-finished products, and paying wages to production workers. The nature of variable costs is also transport costs, value added tax, various payments, if the contract establishes their value in the form of fixed costs.
As is known, in the short term, changes in output are associated with a decrease or increase in the costs of variable resources.
Therefore, variable costs increase as production volume increases.
Moreover, the nature of this growth depends on the return on the variable resource (more specifically, on whether it is increasing, constant or decreasing).
The sum of fixed and variable costs forms the gross (total) total costs in the short term:
TC = TFC + TVC
If the enterprise does not produce products, then the gross total costs are equal to the value of fixed costs. When production volume increases, gross costs increase by the amount of variable costs depending on production volume.
(Materials are based on: E.A. Tatarnikov, N.A. Bogatyreva, O.Yu. Butova. Microeconomics. Answers to exam questions: Textbook for universities. - M.: Publishing House "Exam", 2005. ISBN 5- 472-00856-5)