What are production costs?

Production costs is the cost of all resources expended in the production process, expressed in monetary terms.

General costs– expenses for the acquisition of the entire volume of resources that the enterprise uses to organize the production of a certain volume of products.

External resources- this is everything that the company buys from other commercial organizations or citizens.

Internal resources- this is everything that belongs to the company itself and is used by it to organize its activities (premises, equipment, land, the owner’s funds and his entrepreneurial abilities, which could be used for other purposes).

External (obvious, accounting) costs– expenses for the acquisition of external resources. Domestic (implicit) costs– expenses for the acquisition of internal resources.

Internal costs are equal to the monetary payments that could be received for one's own resources if they were used alternatively (the best possible). Thus, his own premises could be rented out, and the owner of the company, without receiving a satisfactory income, could receive income in the form of a salary, working for hire.

Profit.

Profit– the excess of income from the sale of goods or services over costs.

Revenue– funds received (proceeds) by an enterprise, firm, entrepreneur from the sale of goods and services; distinguish between revenue from the sale of products, revenue from the sale of fixed assets, and trade revenue.

!!! Economic profit = sales revenue – external costs – internal costs. Accounting profit = sales revenue – external costs.

Fixed and variable costs.

Fixed costs- this is that part of the total costs that does not depend at a given time on the volume of output (rent for premises, building maintenance costs, costs of training and retraining of personnel, utility costs, depreciation).

Depreciation(from Middle-century lat. amortisatio - repayment) - a decrease in the value of capital resources as they wear out during production use.

Variable costs- this is that part of the total costs, the value of which for a given period of time is directly dependent on the volume of production and sales of products (purchase of raw materials, wages, energy, fuel, transport services, costs of containers and packaging, etc.).

Full (total, gross) costs = constants + variables . Variable costs increase as production volume increases. An entrepreneur can control variable costs. Fixed costs are beyond the control of the company's management, since they are mandatory and must be paid regardless of the volume of production.

Effective business.

Effect(from lat. effectys - execution, action, from efficio - I act, perform) - 1) result, consequence of any causes, actions (for example, the effect of treatment); 2) a strong impression made by someone or something; 3) a means, a technique (including in art), the purpose of which is to impress, surprise or create the illusion of something (for example, light and sound effects in the theater); 4) physical phenomenon, e.g. photo effect.

Efficiency– process effectiveness, defined as the ratio of effect, result to costs. In economics, an effect is the result of an activity (for example, an increase in profit received by a company compared to the previous year, or the amount of money saved).

Technological efficiency- the level of organization of production at which the maximum possible amount of products is produced from available resources.

Economic efficiency- a method of organizing production in which the costs of producing a certain amount of products are minimal.

Profitability(from him. rentabel - profitable, profitable) - 1) an indicator of the economic efficiency of production, calculated as the ratio of profit to costs or production costs; 2) the ratio of the profit received by an enterprise for a certain period to the costs incurred during the same period.

Profitability = profit / costs.

How are costs different from expenses?

Cost is a monetary assessment of the cost of material, labor, financial, natural, information and other types of resources for the production and sale of products over a certain period of time. The concept of “costs” is used in economic theory and practice as the concept of “costs” in relation to the production of products (works, services) as a whole or its individual stages. Some authors consider the concepts of “production costs” and “production costs” to be identical, but this is not true. The concept of “costs” is broader than the concept of “costs”. Costs are a combination of various types of costs for the production and sale of a product as a whole or its individual parts. For example, production costs are the costs of material, labor, financial and other types of resources for the production and sale of products. In addition, “costs” include specific types of costs: unified social tax, losses from defects, warranty repairs, etc. The concepts of “production costs” and “production costs” can coincide and be considered identical only under certain conditions.

In economics, the use of finance is expressed in costs and expenses. Their correct analysis allows the company to assess economic efficiency and find weaknesses in the financial strategy. Understanding the difference between the indicators makes it possible to understand both the company’s budget planning and the personal budget of each person.

Definitions

Costs are the factors of production used by the organization in monetary terms. They appear only when used, and are not taken into account at the time of purchase. In other words, these are funds that were spent on the creation and marketing of products - materials, raw materials, personnel labor, equipment, finances. They can also be assets of the enterprise. This happens when incompletely used resources become production reserves.

Expenses are costs that are documented, justified and directly related to profit. Documentary evidence is their legally registered movement and use. By justified we mean economically justified costs that are aimed at making a profit. This condition is always checked when assessing economic efficiency.

Costs may arise in the following cases:

Resources have left the company - sales of finished products, payment of fines, etc.;
Reducing the cost of resources, that is, their depreciation over time (decrease in the market value of equipment, cars);
The emergence of a payment obligation to other entities. In fact, the funds may still remain in the company, but legally they belong to another person.

In accounting, the indicator is used in the profit and loss statement.

Comparison

So, the main difference between costs and costs is that the former are resources that have left the company. The latter are used and converted into other resources. In addition, there are a number of other differences between the concepts:

The concept of costs is broader and includes several indicators;
Expenses are always justified and documented;
Costs are not written off from the balance sheet, can remain within the company and are taken into account in the cost of goods or services;
Expenses cannot be assets of the company and are immediately deregistered and used when calculating the profitability of the company.

If you want to be happy, be it.
Kozma Prutkov
(literary mask, collective pseudonym -
A.K. Tolstoy and others), 1850 – 1860.

– Costs and expenses of an enterprise: concept and types
– Composition of costs for production and sales of products. Types of cost
– Enterprise income, their classification
– Profit: economic content, functions, classification
– Types of profit and the relationship between them. Factors influencing the amount of profit. Profit quality
– Planning, distribution and use of profits
– The efficiency of the enterprise and the indicators that characterize it

10.1. Costs and expenses of an enterprise: concept and types

Any production of goods and services, as is known, is associated with the use of economic resources, the relative and sometimes absolute limitations of which, as well as the need to comply with the principle efficiency (economic optimum) lead the enterprise to the inevitability of solving the problem of obtaining a given result at the lowest cost. Let us consider the basic concepts that allow us to reveal the content of the principle of economy.

Cost is the monetary expression of the value of economic (material, labor, financial, natural, information, etc.) resources acquired by an enterprise and intended for the production and subsequent sale of products.

Expenses- these are costs of a certain period of time that have completely transferred their value to sold products.

It should be noted that the concept of “expenses” in the Russian system of accounting and tax legislation is defined differently.

In accordance with PBU 10/99 “Expenses of the organization” expenses An organization recognizes a decrease in economic benefits as a result of the disposal of assets (cash, other property) and (or) the emergence of liabilities, leading to a decrease in the capital of this organization, with the exception of a decrease in contributions by decision of participants (owners of property). The disposal of assets is called payment.

According to Art. 252 Tax Code of the Russian Federation expenses Justified and documented expenses incurred by the taxpayer are recognized. Under reasonable expenses refers to economically justified costs, the assessment of which is expressed in monetary form. Under documented expenses means costs supported by documents drawn up in accordance with the legislation of the Russian Federation. Any expenses are recognized as expenses, provided that they are incurred to carry out activities aimed at generating income.

Thus, it is obvious that not all costs incurred by the enterprise will be recognized as expenses. The concept of “costs” is broader than the concept of “expenses”: expenses, unlike expenses, cannot take the form of inventories and relate to the assets of the enterprise.

It should be emphasized that costs become expenses at the time of their actual use in production.

Note. For example: you bought ice cream (at an enterprise this is, for example, the purchase of raw materials) - this cost(exchanged money for goods). You ate the purchased ice cream (the enterprise produced specific products from these raw materials) - this expenses(you consumed, used up economic resource).

Costs as an important element of the enterprise’s economy are characterized by the following important features:

– monetary value– allows you to compare different types of economic resources;

– target orientation– allows you to determine the directions of use of economic resources (production and sale of products as a whole or one of the stages of this process);

– time assessment (time component)– means that costs must be involved in production and attributed (written off) to finished products until they are sold;

– inventory capacity- means that costs under certain conditions can turn into inventories.

If costs are not involved in production and are not written off (not completely written off) to the cost of production, then they turn into inventories of raw materials, supplies, inventories in work in progress, etc. Thus, costs have the property of inventory intensity and can be attributed to the assets of the enterprise.

Costs are classified according to various criteria. In particular, depending on the method of attribution to the cost of production, they are divided into direct and indirect.

– Direct- can be directly and directly included in the cost of certain types of products (raw materials, basic materials, wages of production workers, etc.).

– Indirect– cannot be attributed to the cost of a certain type of product (expenses for the maintenance and operation of equipment, repairs of buildings, wages of engineering and technical workers, etc.).

Depending on changes in production volume, costs are divided into fixed and variable.

– Permanent– do not depend on the volume of production (expenses for wages, maintenance and operation of buildings and equipment and office equipment, payment of taxes, rent, vehicles, communications, advertising, depreciation, etc.).

– Variables– change in proportion to the increase or decrease in production volume (costs of raw materials, wages of main production workers, fuel and energy, etc.).

However, the division of costs into fixed and variable is conditional, since many types of costs are semi-variable (semi-permanent) in nature (Fig. 10.1).

In particular, the amount of fixed costs can change stepwise over periods depending on the scale, nature and conditions of the enterprise. For example, in summer, fixed costs can be reduced by reducing the cost of heating and lighting of buildings. An increase in fixed costs may be caused by ongoing repairs, acquisition of property under leasing, etc. Fixed costs may vary as a result of changes in prices for the constant component of costs, as a result of the introduction of new funds, changes in production technology, etc.

The high share of fixed costs in the cost price and the steady trend towards its growth lead to an increase in the risk of losses in the event of a reduction in sales volumes. The high share of fixed costs in the cost can be explained both by the underutilization of production assets and by the peculiarities of the technological process.

The amount of variable costs may change due to changes in the range of products sold (different levels of costs for the production of various products), changes in prices for purchased raw materials and supplies.

The behavior of fixed and variable costs depending on changes in production volume can be presented as follows (Table 10.1).

Table 10.1

Behavior of fixed and variable costs depending on changes in production volumes

Production volume	Fixed costs		Variable costs
Production volume	Total	Per unit of production	Total	Per unit of production
Growing	Unchangeable	Are decreasing	Are increasing	Unchangeable
Falls	Unchangeable	Are increasing	Are decreasing	Unchangeable

The analytical relationship between fixed and variable costs can be presented as follows:

Table 10.2

Influence of the value of the response coefficient on the nature of costs

To ensure a reduction in costs and increase the profitability of the enterprise, it is necessary that the rate of reduction in degressive costs exceeds the rate of growth of progressive and proportional costs (Fig. 10.2).

Just like the costs, expenses Depending on their nature, conditions of implementation and areas of activity, enterprises are classified as follows:

– expenses for ordinary activities;

– other expenses.

Expenses for ordinary activities– expenses associated with the manufacture and sale of products, the acquisition and sale of goods, as well as the performance of work and provision of services. They include:

– expenses associated with the acquisition of raw materials, materials, goods and other inventories;

– expenses arising directly in the process of processing (refinement) of inventories for the purposes of production, performance of work and provision of services and their sale, as well as sale (resale) of goods (expenses for the maintenance and operation of fixed assets and other non-current assets, and also for maintaining them in good condition, commercial expenses, administrative expenses, etc.).

When generating expenses for ordinary activities, their grouping should be ensured by the following elements:

– material costs;

– labor costs;

– contributions for social needs;

– depreciation;

– other costs.

In accordance with the profit and loss statement (Form No. 2 of financial statements), expenses for ordinary activities are presented:

– cost of goods, products, works, services sold;

– commercial expenses;

– management expenses.

Product cost– these are the total expenses of an enterprise, expressed in monetary terms, for a certain period of time for the manufacture of products at various stages of readiness.

Business expenses– these are expenses associated with the sale of products, goods, works, and services.

Administrative expenses- these are general business expenses of the enterprise, expenses not related to the production or commercial activities of the enterprise: costs of maintaining administrative and management personnel (accounting, human resources department, legal department, etc.), lighting and heating of non-production facilities, business trips, security services , communication, etc.

Other expenses are:

– expenses associated with the provision of temporary use (temporary possession and use) of the organization’s assets for a fee;

– costs associated with the provision for a fee of rights arising from patents for inventions, industrial designs and other types of intellectual property;

– expenses associated with participation in the authorized capitals of other organizations;

– expenses associated with the sale, disposal and other write-off of fixed assets and other assets other than cash (except foreign currency), goods, products;

– interest paid by an organization for providing it with funds (credits, borrowings) for use;

– expenses associated with payment for services provided by credit institutions;

– contributions to valuation reserves created in accordance with accounting rules (reserves for doubtful debts, for depreciation of investments in securities, etc.), as well as reserves created in connection with the recognition of contingent facts of economic activity;

In accounting, in addition to impeccable knowledge of accounts and postings, it is important to correctly use special terms. This is a sign of professional literacy. But there are situations when accounting luminaries get confused in terms. The Russian language is very rich! In many foreign languages, one word has different connotations depending on the context. But it’s not that simple for us. The concept of costs and expenses is one such complex case. At first glance, it seems that these are synonyms. Is this really true? Or do these two categories have fundamental differences? Let's figure it out.

Costs as they are

Costs are the resources used for the production and marketing of products in monetary terms. In this case, resources can be natural (water, gas, electricity...), material (raw materials, semi-finished products, fuel, building materials, spare parts...), labor (living and material labor) and financial. That is, any payments to a company for the use of economic resources can be considered costs.

Main cost features:

Always associated with the acquisition, processing and storage of resources. Costs show what was used and how much;
Must be expressed in units of value. This is how different resources become comparable and can be summed up (how else can kilograms be combined with kilowatts and man-hours?);
Always tied to specific goals (for the production of goods, works, services; for servicing a structural unit). Costs are usually compared with the results of production activities;
They are considered assets of the enterprise. If costs are not completely written off for a specific product (work, service), then they turn into inventories. This is how production inventories, work in progress and finished products in the warehouse are formed;
Relate to a specific time (reporting) period (month, quarter, year).

Costs arise when one asset is exchanged for another of equal value: one increases and the other decreases by the same amount. As an exception, payroll is considered. In this case, one asset will increase due to a simultaneous and equal increase in the liability to employees. But costs never affect your own capital.

Remember! Costs are recorded in accounting at the time of production consumption. They do not form a financial result, but only accumulate, which is called calculation. Only in the future will they be transformed into the actual cost of products (services, works). They do not reduce the capital of the enterprise.

Classification of costs by degree of occurrence

There are many areas of cost classification. But we will focus on those that most characterize the essence of the concept.

According to the degree of occurrence and attribution to the production result, costs are:

Capitalized - initial receipt and reflection in the balance of resources (inventory, goods, fixed assets);
Recapitalized - re-reflection of previously acquired resources in the balance sheet; formation of a new group of assets using previously displayed resources (work in progress, finished goods);
Decapitalized - a decrease in financial results due to unproductive use of resources (damage, loss);
Current – administrative and sales (commercial) costs.

Costs as they are

Expenses (according to PBU 10/99) are when economic benefits decrease due to the disposal of cash or other assets and (or) liabilities arise, which entails a decrease in the company’s capital, in addition to a decrease in contributions by decision of the founders (owners).

Expenses (according to the Tax Code of the Russian Federation, Chapter 25) are justified (i.e., economically justified and having a monetary value) and documented (directly or indirectly) expenses. It turns out that tax legislation considers expenses as a special case of expenses.

Costs in accounting become expenses when:

No asset formation;
Existing current assets were written off for non-productive needs;
Non-current assets are written off for any reason.

Due to the principle of matching expenses and income, expenses in a particular accounting period are always associated with both production and sales. It is at the moment of product sales that three key indicators are recognized:

Income (through selling price);
Expenses (through cost);
Profit/loss (“Revenue” minus “Expenses”).

Expense accounting begins at certain events. For example:

Shipment of products – finished products (asset) are disposed of at cost, which is less than the selling price. That is, the resulting receivables will be greater than the value of the disposed asset;
Recognition of fines - liabilities increase, but no assets are added to the balance sheet;
Write-off of bad accounts receivable - assets are reduced, but liabilities are not reduced. A loss occurs - a decrease in equity capital;
Recognition of a negative exchange rate difference - liabilities will increase without any increase in assets.

Remember! Any expenses incurred to generate income can be considered expenses. Expenses in accounting are reflected at the time of payment, while payment is considered both an actual purchase and an installment purchase (settlement with a bill instead of cash or by generating ordinary accounts payable). They form the financial result and are therefore reflected in the corresponding financial report.

Classification of expenses by type of activity

The organization's expenses are distinguished by type of activity:

Ordinary are expenses associated with the main, financial, investment and other statutory activities of the enterprise;
Emergency expenses are expenses associated with force majeure situations due to the influence of an irresistible natural force (natural disasters) or provoked by the activities/inactivity of people (fire, war, man-made accident).

Accounting for emergency expenses is carried out in the following areas:

Elimination of consequences (if the harm is reparable);
Loss of assets (if the harm is irreparable);
Other losses caused by production stoppages.

How do costs and expenses relate to each other?

There are three possible situations of correlation between the two categories:

Costs ˂ Expenses– funds have been spent, but the asset has not been used for production consumption. The funds spent can be considered as future expenses, especially when it comes to the development of new production or advance payments for renting premises;
Costs = Expenses– the funds are spent and the acquired asset is fully used during the production and sale of products. Both production and full costs have been generated. This is an ideal match that simplifies accounting;
Costs > Expenses– an asset held in inventory or reserve is used in production and is included in the cost. Or workers' wages were accrued for the previous period. But there was no sale of products.

Be careful! In some regulations (for example, PBU 18/02) there is a confusion of terms. The difference in interpretations in tax and financial accounting creates difficulties in distinguishing between costs and expenses. Pay attention to what exactly you are taking into account and for what purpose.

“Expenses”, “expenses”, “cost” - in this article we will focus on these concepts.

When faced with the daily activities of companies, we constantly hear a number of terms, and they are often used spontaneously and habitually incorrectly, and this leads to misunderstandings between employees.

When we talk about business, we mean that there are expenses that we incur one way or another. Expenses, expenses, cost - are these concepts synonymous? Not entirely, although even experienced managers occasionally confuse them.

Enterprise costs– refers to the monetary value of material, labor and financial resources that are used to support the production process.

Unlike costs, expenses They call that part of the costs that the enterprise incurred in the manufacture of products (works, services) sold in a given reporting period. That is, when products are shipped, the company’s costs become expenses.

In accounting and tax accounting, the concept of “expenses” also sounds differently.

From an accounting point of view expenses of the organization a decrease in economic benefits is recognized as a result of the disposal of assets (cash, other property) and (or) the occurrence of liabilities, leading to a decrease in the capital of this organization, with the exception of a decrease in contributions by decision of participants (owners of property).

From a tax accounting point of view, expenses– these are justified and documented costs of the enterprise. They are divided into costs associated with production and sales (employee wages, purchase price of raw materials, depreciation of fixed assets, etc.) and non-operating costs (negative exchange rate differences, court and arbitration fees, etc.).

Now you need to define the concept of “cost”. Product cost called the valuation of current costs of production and sales of products.

To summarize, we can conclude that expenses on goods sold and cost of goods sold are synonymous concepts.

In classical educational literature, a fairly extensive classification of costs has been adopted. Our advice is not to delve into this classification for the time being.

Fixed and variable costs

For those who have just opened their own company and are trying to make ends meet, those who have just started working, and those whose enterprise is small, it is first important to know exactly the division of costs into fixed and variable.

This will help in proper planning of financial resources.

Such costs are called fixed, the value of which does not change with changes in production capacity utilization and does not depend on the current production volume.

rent;
wages of the organization’s management and employees, if it does not depend on the volume of products produced or sold;
depreciation of fixed assets.

Under variables It is necessary to understand the costs, the value of which changes due to changes in production volume or the degree of utilization of production capacity.

Such costs should include:

raw material costs;
costs of materials for manufacturing products;
energy costs for the technological process, etc.

This logical division of costs should always be remembered, since when creating our own business, we first begin to incur costs. Even when we have not yet started producing anything or providing services. There will always be costs as opposed to profits. And, of course, it’s better to plan them in advance than to think in horror about where to get the money for the next month’s rental of premises or salaries for employees.

There are a couple more subtleties that you should know in planning fixed and variable costs. Variable costs in the cost of the entire output of products (works, services) grow in proportion to the change in production volume, and in the cost of a unit of production they constitute a constant value. The value of fixed costs, on the contrary, does not change with an increase in production volume in the total amount of costs, and per unit of production costs decrease in proportion to its growth.

In any case, when opening your own business, do not forget that although there will definitely be expenses, their composition, size and quality will depend on your planning skills and the rationality of ways to achieve your goal.

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