What are we talking about? A company's costs are the totality of expenses that a company incurs in the production and sale of its product. Their size is affected by the volume of output, technology, and tax burden.
What to pay attention to? Cost accounting and analysis allow businesses to increase profits, reduce tax payments and remain competitive in the market. To reduce costs, a strategy is developed and relevant methods are selected.
In this article:
The concept of firm costs
Types of firm costs
Formulas and example of france phone data calculating the company's costs
Cost Management Tasks
Analysis of firm costs
Fixed Costs and Break-Even Point
Cost reduction strategy of the firm
Methods of reducing company costs
Frequently Asked Questions About Firm Costs
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The concept of firm costs
A company's costs are all the expenses that an enterprise incurs when producing products. For example, an organization rents premises, purchases equipment and materials, and pays salaries to employees.
The concept of firm costs
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The amount of expenses is determined by:
Volume of production . The more goods or services a company produces, the higher its production costs become.
Efficiency and cost-effectiveness of the technologies used . For example, automation in processes reduces production costs, which leads to a reduction in overall costs.
The level of competition in the market . In the presence of powerful competitors, pricing of goods may decrease.
The scale of taxation . Thus, enterprises, in addition to income tax and insurance contributions, are required to pay land tax, since a privately owned enterprise is located on it.
In the field of management accounting, there is another type of expenses - alternative. It is not connected with expenses in any way.
Opportunity costs are the loss of profits due to downtime or choosing one particular course of action.
Let's look at some examples of a company's costs. A meat processing plant's vacuum packer broke down, and the production equipment was out of order for three days. The company's lost profits and costs during the period when production was unable to deliver finished products are opportunity costs.
The concept of firm costs
Source: shutterstock.com
Studying and controlling costs play an important role in successful business development:
Forecast of the future development of the organization . Cost analysis will help to assess the company's profitability, identify unprofitable areas of activity and identify potentially profitable projects.
Optimization of tax payments . Enterprises and private entrepreneurs using a simplified or general tax system can reduce their tax liabilities by correctly accounting for expenses.