How to calculate costs?

Production is a process that takes a lot of time and labor. Production of any product cannot do without production costs, which are also called production costs. How to calculate costs? After all, there are many different classifications of them. According to the method of estimating costs, the costs are conventionally divided into economic, accounting, and alternative. The easiest way to calculate the table. Costs can be substantial. Then the calculation in the head will take too much time.

To economic costs can be attributed those economic costs that the company incurred in the process of production. These are internal and resources acquired by the enterprise, the profit of the enterprise, which is considered as compensation for risk. Economic costs are usually included in the price of products.

The opportunity costs can be attributed to those costs that should go to the production of products that are not produced; instead, ready-made resources are used.Calculate the opportunity cost of production is most simple, because the amount of such costs the entrepreneur establishes himself.

Accounting costs include cash expenses. These costs are slightly less than economic costs, since they take into account only real costs (when, how much and what was spent). Accounting costs, in turn, are divided into direct and indirect. Direct include those costs that went directly to the production of products, to the indirect include various types of payments (interest to banks, depreciation, etc.). Accounting costs make up the difference between economic and opportunity costs.

Depending on the size of production, one can distinguish fixed, variable and general types of costs. To the fixed costs include the costs incurred by the company all the time. These include the cost of renting the premises, the purchase and repair of equipment, payment of taxes, salary to the director and administration, etc. These costs do not depend on the volume of products.

Variable costs include production costs. They directly depend on the volume of production.These are the expenses incurred for the payment of wages to workers, and the costs of transportation services and the purchase of raw materials, advertising expenses, etc. The higher the output, the higher the variable costs. The sum of the costs of fixed and variable, gives as a result total or gross costs. How to calculate the average cost? Their relationship can be expressed mathematically in the form of formulas. Namely, how to calculate fixed costs, we will be prompted by the formula:

  • FC + VC = TC;
  • TC � FC = VC; (it is this formula that answers the question of how to calculate average variable costs)
  • TC� VC = FC,

FC - fixed costs; VC - cost variables; TC - gross costs.

Gross costs can be divided into average and marginal. Average costs characterize the costs that are incurred in the manufacture of one unit of production. Mathematically they are expressed as follows:

  • ATC = TC / Q
  • AFC = FC / Q
  • AVC = VC / Q

where ATC - average total costs; AFC - average fixed costs; AVC - average variable costs; Q - the amount of product produced.

Marginal cost characterizes the amount of expenditure that goes to produce an additional unit of product. They show how costs change with different quantities of products. Mathematically they are expressed as follows:

  • MC = ΔTC / ΔQ

where, MS - the marginal costs; ΔTC is the change in total costs; ΔQ - the change in the number of products. Calculation of marginal costs gives the entrepreneur the opportunity to calculate at what volume of production there will be minimal costs.