# How to calculate the cost ?

Before each owner of the business is a lot of questions, one of which is the management of production costs.It is important to be able to share the cost of fixed and variable, to understand how they affect the profit, how to calculate the costs and how they vary with changes in production volumes.

Any costs of the enterprise is the sum of fixed and variable costs.

## Fixed costs Fixed costs

(denoted FC - «fixed costs») - are those costs that do not vary with the reduction or increase in the volume of output.In the production of a certain scale are unchanged, but the expansion can increase production and then again change certain time.

Through continuous production costs is in principle possible, as they create the initial conditions for the activity of the enterprise.These costs exist even when the company does not produce anything.Thus the fixed costs do not change with the construction of new buildings or the purchase of new equipment for the company.

For fixed costs usually include the cost of depreciation of fixed assets, rental, fixed salaries of employees of the enterprise, fixed social benefits, to maintain equipment and building costs in operation and many others.The principle of how to calculate the fixed cost, is very simple: it is enough to determine what the cost of your company are fixed and folded them.Also, companies often rely on the average fixed costs, which are defined as the ratio of fixed costs to manufactured products.If

expect fixed costs per unit of output, you can see that with the increase in sales is the number decreases, which leads to quite a rapid increase in profits.This income has a significant impact even a small change in revenues in any direction.The company, the bulk of whose costs is constant, is quite difficult to adapt to the surrounding environment of financial change.That is why in the interest of the owner of the enterprise is the maximum decrease in the share of fixed costs among total costs.

If the company is working in a more or less constant market situation and the significant fluctuations in sales is not expected, the fixed costs do not harm its operation.

## Variable costs

Variable costs (denoted by VC - «variable costs»), as opposed to permanent, directly depend on the volume of products.At the same time the relationship between them is directly proportional: the larger issue, the greater the cost.

From an economic point of view, variable costs are the costs of the actual implementation of the company to achieve its goals.Variable costs arise only when the company begins to produce products.By increasing the scale of production and variable costs begin to rise.

For variable costs usually include the cost of materials, raw materials, component parts for equipment, electricity, fuel, wages for workers, on the marketing of products, and other expenses.The principle of how to calculate the variable costs, is similar to the constant: it is enough to find out what the company costs are variable and stack them.

By reducing the volume of output in proportion to the variable costs are reduced, and at the termination of production they all disappear.If a company has the bulk of the costs are variable, it will be much easier to adapt to changes in the external background.If necessary, reduce the release of such an enterprise will be able to easily move the temporary difficulties in the work.That is why, if the company has to work in a constantly changing market environment, it is important to try to make the bulk of the costs were variable.

## Mixed costs

In every enterprise there are costs that can not be unambiguously attributed to the constant or variable, so they are called mixed.

striking example of the mixed expenses are the costs of telephone communications.Payment for it consists of a fixed monthly fee and variable costs on long-distance calls.

To facilitate accounting miscellaneous expenses must be divided into variables and constants.To do this, you need to enter the appropriate accounting system.Now you know how to calculate costs.Good luck in business!