Implicit cost definition. The concept of costs. Cost classification

production costs are the costs cash spending, which must be carried out to create a product. For an enterprise (firm), they act as payment for the acquired factors of production. From the division of costs into alternative and accounting costs, the classification of costs into explicit and implicit follows. Explicit costs are determined by the amount of the enterprise's expenses for paying for external resources, i.e. resources not owned by the firm. For example, raw materials, materials, fuel, work force etc. Not explicit costs determined by the cost of internal resources, i.e. resources owned by the firm. An example of an implicit cost for an entrepreneur would be the salary that he could receive while working for hire. For owner capital property(machinery, equipment, buildings, etc.) previously incurred expenses for its acquisition cannot be attributed to the explicit costs of the current period. However, the owner bears implicit costs, since he could sell this property and deposit the proceeds in the bank at interest, or rent it to a third party and receive income.

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

Explicit costs- This opportunity cost, which take the form of cash payments to suppliers of factors of production and intermediate products.

Explicit costs include: wage workers; cash costs for the purchase and rental of machine tools, equipment, buildings, structures; payment of transport costs; communal payments; payment of suppliers of material resources; payment for services of banks, insurance companies

Implicit costs is the opportunity cost of using resources owned by the firm itself, i.e. unpaid expenses. Implicit costs can be represented as: cash payments that a firm could receive with a more profitable use of its resources; for the owner of capital, implicit costs are the profit that he could receive by investing his capital not in this, but in some other business (enterprise)

In the short run, some resources remain unchanged, while others change to increase or decrease total output. Regarding this economic costs short term are divided into permanent and variable costs . In the long run, this division loses its meaning, since all costs can change (i.e., they are variable).

fixed costs are costs that do not depend in the short run on how much the firm produces. They represent the costs of its fixed factors of production.

Fixed costs include: payment of interest on bank loans; depreciation deductions; payment of interest on bonds; management staff salary; rent; insurance payments.

variable costs These are costs that depend on the volume of production of the firm. They represent the costs of the firm's variable factors of production. Variable costs include: wage; fare; electricity costs; raw material costs

From the graph we see that the wavy line depicting variable costs rises with an increase in production volume.

This means that as production increases, variable costs increase: at first they grow in proportion to the change in the volume of production (until the point is reached); then variable cost savings are achieved at mass production, and their growth rate decreases (until reaching the point ); the third period, reflecting the change in variable costs (movement to the right of the point ), is characterized by an increase in variable costs due to a violation optimal sizes enterprises. This is possible with an increase in transportation costs due to the increased volumes of imported raw materials, the volumes of finished products that need to be sent to the warehouse.

General (gross) costs are all costs for this moment the time it takes to produce a particular product. Total costs ( , total cost) are general expenses firms to pay for all factors of production. Total costs depend on the volume of products produced, and are determined by: quantity; the market price of the resources used. The relationship between the volume of output and the volume of total costs can be represented as a function of costs.

Having studied the demand for its products, the firm can plan the volume of output of these products, minimizing its costs and maximizing profits.

Types of costs

Costs - is the cost of economic resources (factors of production) used in the process economic activity.

Part of these costs is carried out during the sale (circulation) of products, so they are called handling costs. But most of the costs are production costs (production costs) - the costs associated with the production of goods and services. In practice, they look like material costs, labor costs, interest on a loan. In this chapter, production costs will be considered first.

Exist different kinds costs (costs) of the firm. For example, explicit and implicit, direct and indirect, constants and variables.

Explicit and implicit (imputed) costs

To explicit the firm's cost of paying for factors of production economic resources.

The sum of explicit costs acts as the cost of production, and the difference between the market price of the sold products (ie, the company's income) and the cost - as profit.

However, the sum of production costs, if they include only explicit costs, may be underestimated.

For a more accurate picture, the costs should include not only explicit, but also implicit (imputed).

Implicit (imputed ) are called the costs of using those resources that are recognized as the property of the company.

These costs are not included in the firm's payments to other organizations or individuals. For example, the owner of land does not pay rent, however, by cultivating the land himself, he thereby refuses to rent it out and from the income that arises in connection with this. Individual entrepreneur is not hired by the factory and does not receive wages there. Finally, an entrepreneur who has invested his own money in his company cannot put it in a bank and receive bank interest.

Therefore, implicit (imputed) costs are loss of income which could be obtained by the owner of the economic resource when renting it out.

Implicit costs are one of the options for opportunity costs, i.e. opportunity cost (see 1.4).

Taking into account not only explicit, but also implicit (imputed) costs allows you to more accurately assess the profit of the company. economic profit is defined as the difference between the market price and all (explicit and implicit) costs, in contrast to accounting profit, in the formation of which only explicit costs are taken into account.

Suppose you decide to renovate your apartment yourself. Your costs will be the cost of wallpaper, paint, glue, etc. However, while renovating your apartment for several days, you give up another job where you could receive a certain income (for example, 10 thousand rubles). Your cost structure will look like this:

Obviously, if the repair office for the same work (without the cost of materials) requires less than 10,000 rubles, then you will prefer to apply there, and if more than this amount, you will repair the apartment yourself.

Fixed and variable costs

The criterion for dividing costs into fixed and variable is their dependence on changes in the volume of production and sales. This classification has great importance to justify decision-making and planning the production process, so we will dwell on these costs in more detail.

Permanent costs (FixeD costs, FC) do not change with changes in the volume of production, remain stable. These include, first of all, depreciation of fixed capital (machinery and equipment, buildings, structures, etc., see 16.2), advertising costs, rent, etc.

Variables costs (Variable costs, VC) increase with the expansion of output and decrease with its reduction. Variables include the costs of labor, raw materials, etc., which change depending on the change in the scale of activity. Certain distribution costs, such as commissions to resellers, telephone charges, stationery, also grow with the growth of the business and are therefore classified as variable costs.

However, it is quite difficult to make a clear division of costs into fixed and variable, since some of their types can be classified as both fixed and variable. In this case, one speaks of conditionally constant or conditionally variable costs Oh. For example, part of the wages of workers, which depends on output, refers to variable costs, the other part, paid regardless of the amount of output, is fixed.

The complexity also lies in the fact that the division of costs into fixed and variable can be carried out only in relation to a certain period of time. The division of costs into fixed and variable implies the conditional allocation of short-term and long-term periods in the activities of the company. Short-term is understood as such a period in the work of the company, when the company does not buy new equipment, does not build new buildings, etc. In the long run, the firm can expand its scale, so in the long run all its costs are variable.

The decision to classify certain costs as fixed or variable is made for each specific enterprise, taking into account the specifics of its costs and the specific period of its activity.

The sum of fixed and variable costs is gross (cumulative ) firm costs ( Total costs , TS).

Average cost

Under average is understood as the costs of the firm for the production and sale of a unit of goods.

There are several types of them:

• average fixed costs ( Average fixed costs, AFC ) are calculated by dividing the fixed costs of the firm by the volume of production;
• average variable costs ( Average variable costs, A VC ) are variable costs per unit of output;
• average gross costs, or the total cost of a unit of product ( Average total costs, ATC ) is the sum of average variable and average fixed costs, or the quotient of gross cost divided by output.

Table 11.1

Fixed, variable, gross and average costs of the firm

From the data in Table. 11.1 shows that the average gross costs decrease with the growth of production volume. This is because as the firm expands, the fixed costs of the firm are borne by more and more large quantity products, resulting in lower prices.

Average variable and average gross costs can behave differently when the volume of production increases. In our example, the average variable costs are the same for volumes from 100 to 300 pieces, with further expansion (up to 600 pieces) they increase. Average gross costs decrease with volume growth up to 400 pieces, then they increase.

production costs are expenses, cash expenditures that must be made to create goods. For enterprises(firms) they act as payment for acquired factors of production.

Private and public costs.

Costs can be viewed from different perspectives. If they are examined from the point of view of an individual firm (individual producer), we are talking about private costs. If the costs are analyzed from the point of view of society as a whole, then there are externalities and, as a result, the need to take into account social costs.

Let us clarify the concept of external effects. In market conditions, a special relationship of sale and purchase arises between the seller and the buyer. At the same time, relations arise that are not mediated by the commodity form, but that have a direct impact on people's well-being (positive and negative externalities). An example of positive externalities is the cost of R&D or training of specialists, an example of a negative externality is compensation for damage from environmental pollution.

Public and private costs coincide only in the absence of external effects, or if their total effect is equal to zero.

fixed costs- this is a type of cost that an enterprise incurs within one production cycle. Determined by the company itself. All these costs will be typical for all cycles of production of goods.

variable costs- these are the types of costs that are transferred to the finished product in full.

General costs- those costs incurred by the enterprise during one stage of production.

General = Constants + Variables

Accounting costs is the cost of the resources used by the firm at their actual acquisition prices.

Accounting costs = Explicit costs

economic costs is the cost of other goods (goods and services) that could be obtained with the most profitable of the possible alternative directions for the use of these resources.

Opportunity (economic) costs = Explicit costs + Implicit costs

Explicit and implicit costs.

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

Explicit costs are determined by the amount of expenses enterprises to pay for external resources, i.e. resources not owned by the firm. For example, raw materials, materials, fuel, labor, etc. Implicit costs are determined by the cost of internal resources, i.e. resources owned by the firm.

An example of an implicit cost for an entrepreneur would be the salary that he could receive while working for hire. For the owner of capital property (machinery, equipment, buildings, etc.), the previously incurred expenses for its acquisition cannot be attributed to the explicit costs of the current period. However, the owner bears implicit costs, since he could sell this property and deposit the proceeds in the bank at interest, or rent it to a third party and receive income.

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

Explicit costs-- is the opportunity cost, which takes the form of cash payments to suppliers of factors of production and intermediate products.

Explicit costs include:

• workers' wages
• cash costs for the purchase and rental of machines, equipment, buildings, structures
• payment of transport costs
• · communal payments
• payment of suppliers of material resources
• payment for services of banks, insurance companies

Implicit costs is the opportunity cost of using resources owned by the firm itself, i.e. unpaid expenses.

Implicit costs can be represented as:

• cash payments that a firm could receive if it used its assets more profitably resources
• For the owner of capital, implicit costs are the profit that he could receive by investing his capital not in this, but in some other business (enterprise)

Reimbursable and sunk costs.

Sunk costs are considered in a broad and narrow sense.

In a broad sense, sunk costs include those costs that the company cannot recover even if it ceases to operate (for example, the cost of registering and firms and obtaining a license, preparing an advertising inscription or company name on the wall of a building, making seals, etc. .). Sunk costs are, as it were, a firm's payment for entering the market or leaving the market.

In the narrow sense of the word sunk costs-- is the cost of those types of resources that do not have an alternative use. For example, the cost of specialized equipment made to the order of the company. Since the equipment has no alternative use, its opportunity cost is zero.

Sunk costs are not included in opportunity costs and do not affect the current decisions of the firm.

firm cost short run competition

From the division of costs into alternative and accounting costs, the classification of costs into explicit and implicit follows. Explicit costs are determined by the amount of expenses of the enterprise to pay for external resources, i.e. resources not owned by the firm. For example, raw materials, materials, fuel, labor, etc. Implicit costs are determined by the cost of internal resources, i.e. resources owned by the firm.

An example of an implicit cost for an entrepreneur would be the salary that he could receive while working for hire.

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

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

Explicit costs include:

§ workers' wages

§ cash costs for the purchase and rental of machines, equipment, buildings, structures

§ payment of transport costs

§ communal payments

§ payment of suppliers of material resources

§ payment for services of banks, insurance companies

Implicit costs is the opportunity cost of using resources owned by the firm itself, i.e. unpaid expenses.

Implicit costs can be represented as:

§ cash payments that a firm could receive with a more profitable use of its resources

§ for the owner of capital, implicit costs are the profit that he could receive by investing his capital not in this, but in some other business (enterprise)

Production and sales costs represent a set of expenses of enterprises expressed in monetary form for the production and sale of products (works, services). They ensure the continuity of production and create conditions for the sale of products.

first classifier: according to the method of occurrence:

· Production - costs directly related to the manufacture of products.

Commercial - costs associated with the sale of products

second sign: expediency

Productivity - costs that are justified and appropriate in the given production conditions.

· Unproductive - costs that are formed due to insufficient technology and organization of production, with losses from marriage, downtime, shortages, etc. third sign: according to the method of attributing to the cost of individual production:

1) direct - economically homogeneous costs related to the cost of a particular type of product directly in accordance with justified. Norms and regulations.

the fourth feature in relation to the technological process:

main costs. These include costs directly related to the technological processes of manufacturing products.

· Overhead costs. Not related to technological process production and are formed under the influence of certain production conditions. These include general production costs, costs associated with the implementation.

The fifth sign is according to the degree of dependence on changes in the volume of production .

· Variables. Costs, the amount of which directly depends on changes in the volume of production (raw materials, fuel and energy chains). Picture.

Fixed or conditionally fixed costs - costs, the absolute value of which does not change or changes slightly when the volume of production changes (heating, telephone costs). picture

The sixth sign - according to the degree of uniformity

Elemental or homogeneous costs - costs that cannot be divided into component parts (costs for raw materials, material, wages)

Complex costs - costs that consist of several homogeneous costs. (general production, general economic, commercial).

Seventh sign- depending on the time of occurrence and attribution to the cost of production.

· Current expenses. They arise mainly in a given period and are attributed to the cost of production of the same period.

· Future spending. They are carried out in a given period of time, but are included in the cost of production of subsequent periods in a certain proportion.

· Upcoming costs are costs that have not yet been incurred for which funds are reserved.

Reserves for reducing production costs are identified during the analysis for each item of expenditure. Cost savings can be obtained through specific organizational and technical measures.
Overhead savings reserves are identified based on their factor analysis for each cost item, due to a reasonable reduction in the management apparatus, economical use of funds, reduction of losses from damage to materials and finished products, payment for downtime, etc.
Additional costs for the development of reserves for increasing production are determined separately for each type. This is mainly wages for additional output, consumption of materials, raw materials, energy and other variable costs, which change in proportion to the volume of production.
To determine their value, it is necessary to multiply the reserve for increasing output by the actual level of specific variable costs.
The main factors for reducing the cost of production:
raising the technical level of production;
improvement of the organization of labor and production;
change in the volume and structure of industrial products;

7. Role financial resources in the operation of the enterprise. Own and borrowed financial resources. Profit: essence, types, sources of formation and directions of use. Profitability and its types.

Financial resources of the organization is the totality of all Money and revenues available to the economic entity.

The role of finance in economic activity organizations is manifested in the fact that with their help it is carried out:

1. maintenance of the individual circulation of funds, i.e., there is a change in the forms of value: the monetary form turns into a commodity, and then the goods acquire the monetary form of value back (after the completion of the production processes and the sale of finished products in the form of proceeds from the sale of products;

2. distribution of proceeds from the sale of goods (after payment of indirect taxes) to the fund for the reimbursement of material costs, including depreciation, the wage fund and net income acting in the form of profit;

3. redistribution of net income for payments to the budget (profit tax) and profit left at the disposal of the enterprise for production and social development;

4. use of profit left at the disposal of the organization ( net profit) for consumption funds, savings and other purposes provided for in its financial plan;

5. monitoring compliance with the correspondence between the movement of material and monetary resources in the process of individual circulation of funds, i.e., the state of liquidity, solvency and financial independence of the organization from external sources of financing.

In the domestic practice of planning and accounting, sources of financial resources are divided into own and borrowed. Own ones are considered the most reliable, since self-financing reduces the risk of bankruptcy and has certain advantages over competitors. The list of sources of own financial resources of enterprises includes:

* retained earnings; Reserve capital; accumulated depreciation charges; Extra capital; insurance indemnities in case of occurrence, funds off-budget funds and other funds received in the order of compensation; additional issue of shares, issue of depositary receipts.

Reserve capital joint-stock companies should form in without fail. A specific source of financing is additional capital. Unlike authorized capital, it is not divided into shares and shows the common property of all participants.

The formation and increase of additional capital can be carried out in the following cases:
1. Upon receipt of share premium.
2. When revaluing fixed assets.
3. In the event of exchange rate differences as a result of the formation of authorized capital in foreign currency.
4. When receiving targeted investment funds from the budget to finance capital investments (typical for non-profit organizations).

Additional capital funds can be used: to pay off the depreciation of fixed assets identified as a result of revaluation; to increase retained earnings on write-offs of amounts before valuation for retired fixed assets; to increase the authorized capital when making changes to founding documents; for distribution among the founders of the organization.

When internal sources financing is not enough to cover investment needs, joint-stock companies may resort to such an option as an additional issue of securities.

The cost of what the seller refuses for the sake of commodity production is the cost, which can be external (explicit) and internal (implicit). Implicit costs are expenses with unearned revenues.

Firm costs

For example, a salesperson works in his own utensils shop and does not receive wages. And if he didn’t work in his own way, he would get it. In addition, owning a store requires many costs in addition to the seller's wages - repairs, movers, cleaning, and much more, which are included in implicit costs. This is fine. Because the owners of their own stores have a profit that more than covers the explicit and implicit costs, otherwise they would get rid of non-profitable property.

And the company's costs can simply be reduced. Do not hire a seller, for example, so as not to spend money on his wages, but trade yourself. Each firm (not necessarily a trading one), carrying out its activities, incurs certain costs that may be associated with the purchase and repair of equipment and other production factors, as well as with the sale of products that we managed to produce. The valuation of all these costs is implicit costs. This is offset by the introduction of economically effective method the operation of the enterprise with the minimization of costs. That is, the owner of a dishware shop can combine his work as a manager with the duties of a seller, loader and cleaner. Thus, it minimizes costs. Or introduce a much more innovative approach to managing.

Types of Implicit Costs

Costs of production are the costs incurred in the production of services or goods directly. What is connected with the implementation - the costs of circulation. Implicit costs are both the costs of the company itself (individual), and the total cost in the production process of the product. This includes the training of personnel and the protection of the surrounding area - a lot of costs, called public.

Further, the classification of costs refers in detail specifically to each type. This will be discussed a little later, since at first it is necessary to note those expenses that cannot be attributed to the main ones. Implicit costs are also additional costs to bring the manufactured products to the consumer. Here, for example, packaging, storage, packaging, transportation. Net distribution costs are called the costs of acts of sale: the wages of sellers, including accounting for trade operations, advertising, and much more. They are called pure because they do not form a new value, but are subtracted from the value of the commodity.

Approaches to the essence

Explicit and implicit costs are considered from two different positions - accounting and economic. An accountant looks to the past, and an economist looks to the future.

• Accounting implicit costs are an estimate of the cost of resources already used, and prices remain actual and equal to implementation. Thus, a value appears, called the cost of production.
• From an economist's point of view, implicit costs are a problem of limited resources and the calculation of alternative uses of them. By and large, all costs have the opportunity to become alternative.

The economist simply chooses best option work when using resources, calculated to make a profit not today, but in the foreseeable future. This means that it often turns out that the economic costs exceed the explicit and implicit ones. In the best case, the expenditure of a resource to produce a good or service is equal to its value, but the most profitable of the two is always used. possible options use. A firm's economic costs are almost always greater than accounting costs because they are cumulative and alternative.

Classification

Economic costs, as already mentioned, are much greater than any other, and classification will require a certain starting point, the principle by which it will be carried out. For example, dependence on the payment of resources. According to this principle, all the costs of the economic plan are divided simply into two unequal parts.

• Explicit costs are external, that is, they are spending money that the company pays for service providers, fuel, raw materials, all kinds of auxiliary materials, transport, and so on - in the case when the suppliers are not related to the ownership of the company. These expenses are necessarily reflected in the balance sheet and reports and therefore can be attributed to accounting costs.
• Internal (implicit) production costs are spending on independently used own resource. In a firm, they are the equivalent cash payments, which could be obtained for the resource used independently, that is, the application will be the most optimal.

Return to the first example

Examples of implicit costs are numerous, but it is better to confine ourselves to the already familiar and consider it with different parties. So, we have the owner of a small shop, located in his own premises. Now, if it were not for the shop, then this area could be rented out for ten thousand rubles, for example. This monthly uncollected amount is an internal cost category. And to add here also a mythical salary, if the owner worked not for himself, but for another person, this would have turned out to be a considerable amount of internal costs.

What keeps the owner of the shop from saying goodbye to own business we have already discussed. But it does not hurt to extend the analogies and specify them. The minimum wage to keep the business going is called the normal profit. Here you need to add not wages in a foreign company with money received for rent, but add unearned income with normal profit, then you get what is considered internal (implicit) costs. Economists, on the other hand, consider everything: both explicit and implicit costs, plus a normal profit to them.

Wear

When capital resources lose their original value, this is called depreciation. The loss of technical and production properties of means of labor, otherwise consumer qualities, is physical depreciation, and if the value of capital paper decreases, which is often not associated with the level of consumer qualities, this is moral depreciation. The first causes an increase in efficiency in the production of capital goods, that is, there appear albeit cheaper, but similar new means of labor, with similar functions and more advanced.

Moral obsolescence is a consequence of scientific and technological progress, which is an unpredictable increase in costs for the company: constancy leaves this process. At wear and tear spending is variable: because capital equipment serves much more than a year, its cost is gradually transferred to finished products- the so-called depreciation. Enterprises have a special depreciation fund.

Deductions for depreciation

These deductions reflect an estimate of the amount of depreciation and its magnitude, so they are also an item of implicit costs. But the role of these deductions is beneficial, because only they will serve in the future as a source of renewal of capital goods. Depreciation rates are set by law at the state level as a percentage of the cost of depreciation per year. Depreciation shows how long it will take to recover the cost of all fixed assets.

According to the law of diminishing marginal returns, which is valid only for a short time and has a relative character, it is still possible to calculate that fatal starting point when the variable factors applied additionally will not help to keep production from reducing or falling in the increase in output. Even if only one factor fails - with all the others unchanged - it will happen.

Sunk costs

Implicit costs cannot be identified with sunk costs, which the firm incurs once and will never be able to return. For example, if the owner of our shop spent a certain amount on a sign, then even if his business is sold, he will not return the money for its manufacture.

Also, the classification criterion can be the time intervals during which the costs occurred. Since the firm's fixed costs of producing products do not depend entirely on the prices of factors of production, part of the costs will depend on which specific factors are used, when and in what quantity. Based on this, long- and short-term periods in the activities of this company are classified.

Summary

• If the store owner deducts all external (explicit) costs from total revenue, then he will have an accounting profit that does not take into account only internal (implicit) costs.
• If he subtracts the implicit (internal) costs from there, he will receive the amount economic profit.
• But with all this, economic profit must take into account the costs of both.
• If the total revenue of the company is equal to the total costs, then normal profit appears, and the minimum level of profitability of the enterprise is located where the owner benefits from his business, but economic profit can also be zero.
• The presence of net economic profit means that this enterprise uses resources efficiently.
• Economic profit is less than accounting profit by the sum of all implicit costs, and yet it is precisely this that is the criterion for the success of a firm or enterprise.

Production costs can be interpreted as spending on improving economic resources. This science itself offers only four criteria for assessing the factors of production. This is primarily labor, capital, land and entrepreneurial ability. If the owner of the store competently attracts these resources to his business, he will definitely receive a secured income according to the same four parameters: wages, rent, interest and profit.