The cost of production is the cost ofacquisition of factors of production: land, capital, labor. The costs of production, which include a normal profit, are called economic or imputed. And they are not equivalent to the economic costs that are used in accounting. In them, the profit of the owner of the firm is not included.
So, what does the cost structure look like?
Gross expenditure is the cost that is requiredon the production of a particular product at a given time. They are variable and constant. The first group is direct costs. Constant costs do not depend on how much production is produced and the organization bears them in any case. These include the costs of paying utilities, buying buildings, etc.
Direct production costs are costs,which are associated with the costs of labor, the purchase of basic materials and raw materials, fuel, etc. They are directly dependent on the output of manufactured products. The more you need to produce products, the more raw materials will be required.
Constant costs and direct costs are included in the cost of production.
The enterprise should clearly identify possibleproduction volumes to avoid excessively high production costs. To do this, investigate the dynamics of average costs. If direct costs and fixed costs are attributed to how much production will be produced, then the average costs will be obtained.
Average costs may be higher than the market price,are equal to it or lowered below. The enterprise will be profitable if they are lower than the market price. When an enterprise compares its production costs in various industries, it receives a sum of alternative costs. They represent the costs of producing other goods, from the release of which the entrepreneur can refuse, if he considers that his product can create greater efficiency.
It is important for the firm to compare marginal costs andaverage. This helps in the management of the organization, determining the optimal volumes of production, in which the enterprise always receives profit and is consistently profitable.
In modern market conditions for the calculationefficiency in production is expected to compare income and costs. The expenses include wages, expenses for materials, components, utilities and others. Direct costs can be considered key, as they affect the volume of output.
To reduce costs, someactivities: staff development, the use of new technology and production technologies, the use of new transportation methods, new advertising, trade.
