The type of cost refers to fixed costs. Lecture: production costs and company profits. Components of a parameter
FIXED COSTS
FIXED COSTS
(fixed cost) The part of gross costs that does not depend on current production volume. Fixed expenses include management costs and enterprise security costs. Fixed costs in the short term have no impact on profit-maximizing output, but in the long term a firm that is unable to cover its fixed costs will inevitably become insolvent and go out of business.
Economy. Dictionary. - M.: "INFRA-M", Publishing House "Ves Mir". J. Black. General editor: Doctor of Economics Osadchaya I.M.. 2000 .
Economic dictionary. 2000 .
See what “FIXED COSTS” is in other dictionaries:
- (fixed costs) See: overhead costs. Business. Dictionary. M.: INFRA M, Ves Mir Publishing House. Graham Betts, Barry Brindley, S. Williams and others. General editor: Ph.D. Osadchaya I.M.. 1998 ... Dictionary of business terms
Fixed costs- FIXED COSTS Costs, the value of which does not depend on the volume of production in the short term. These are lease payments, depreciation deductions, interest on loans and other costs that have to be reimbursed in any case.... ... Dictionary-reference book on economics
Fixed costs- Costs, the total volume of which is fixed for a given period of time for a given level of production ... Investment Dictionary
Fixed costs- costs, the size of which does not depend on the volume of production ... Economics: glossary
Fixed costs (eng. total fixed costs) an element of the break-even point model, representing costs that do not depend on the volume of output, contrasted with variable costs, which add up to total costs... Wikipedia
fixed production costs- expenses of an enterprise that do not directly depend on the volume of products produced, which cannot be increased or decreased within a short period of time in order to increase or decrease production output. Usually this… … Dictionary of economic terms
- (average fixed cost) Average fixed costs for a certain period of time incurred by the cost center. At first glance, it seems that there is a contradiction here: if costs are constant, they do not change and, therefore, do not... ... Dictionary of business terms
conditionally fixed costs- conditionally fixed costs. The dependence of these costs on production volumes has a stepwise nature (for example, costs for storing materials and finished products).
Topics economics Synonyms conditionally... ...
Production costs are the costs associated with the production of goods. In accounting and statistical reporting they are reflected as cost. Includes: material costs, labor costs, interest on loans...... Wikipedia fixed costs - Fixed cost An element of cost or expense that does not depend on the volume of activity in the short term. Also called non-variable or fixed costs. Wed. c Variable Cost.… …
Technical Translator's Guide
Production costs: concept and types.
The behavior of the company in the short and long term.
Revenues and profits of the company.
Production costs: concept and types. If the buyer, when purchasing a product on the market, is primarily interested in its usefulness, then for the seller (manufacturer), production costs occupy a central place. In microeconomics important role
The time factor plays a role. Therefore, before characterizing costs, we introduce the concepts of short-term and long-term periods of time. Short-term (or short) period - this is a period of time during which some factors of production are constant, while others are variable. Fixed factors of production include resources such as the overall size of buildings and structures, the number of machines and equipment used, etc., as well as the number of firms operating in the industry. It is assumed that the opportunities for free access of new firms to the industry in the short term are very limited.
In the short term, the company has the opportunity to vary only the degree of utilization of production capacity (by changing the length of working hours, the amount of raw materials used, etc.). Long-term (long) period - this is the period of time during which all factors are variable. In the long run, a firm has the opportunity to change the overall size of buildings and structures, the number of machines and equipment used, etc., and the industry - the number of firms operating in it.
The long run is the period during which barriers to entry and exit from an industry are overcome. Production costs
- the total costs of producing a product or service in monetary terms.
Production costs are divided into: individual
public- for production, environmental protection, training of qualified labor, scientific development;
production- for the production of goods and services;
appeals- related to the sale of manufactured products;
external (explicit)- resources purchased by the company (accounting costs);
internal (implicit, or implicit)- the company’s own resources (not reflected in the financial statements).
Internal and external costs are economic costs of the company. A firm's economic costs also include normal profit- this is the minimum profit that keeps an entrepreneur in a given industry.
Costs are classified in various ways. Thus, from the point of view of an individual enterprise (firm), a distinction is made between explicit and implicit costs.Explicit (external) costs - cash payments that an enterprise (firm) makes to suppliers of production factors in the case when these factors do not belong to it. Explicit costs include wages paid to employees, commissions paid to trading firms, payments to banks and other financial service providers, transportation costs, depreciation of equipment, costs of raw materials and supplies, etc.These are accounting costs. Implicit (implicit, internal) costs - the cost of services of factors of production that are used but not purchased, or this is the opportunity cost of using resources owned by the owners of firms that are not received in exchange for explicit (monetary) payments. Thus, if the owner of a small company works alongside the employees of this company without receiving a salary, then he thereby refuses to receive a salary by working somewhere else. Implicit costs are usually not reflected in financial statements. Establishing the distinction between explicit and implicit production costs is necessary to understand the types of profit.Normal profit - this is the minimum payment that the owner of the company must receive so that it makes sense for him to use his entrepreneurial talent in this field of activity. Lost income from the use of own resources and normal profit in total form internal costs. That's why,economic costs is the sum of explicit and implicit costs.
Production costs in the short term are divided into:
constant (FWITH)- their value does not change depending on changes in production volume. They exist even if the company does not produce anything. Includes: interest payments on loans and borrowings, rent, depreciation, property tax, insurance premiums, wages management personnel and specialists of the enterprise (firm);
variables (V.C.) - vary directly depending on the volume of production. They are associated with the costs of purchasing raw materials and labor. The dynamics of variable costs is uneven: starting from zero, as production grows, they initially grow very quickly; then, as production volumes further increase, the factor of economy in mass production begins to affect, and the growth of variable costs becomes slower than the increase in production. Subsequently, however, when the law of diminishing returns comes into play, variable costs again begin to outpace production growth. In the long run, all costs are variable;
gross (total) (TS) is the sum of fixed and variable costs for each given volume of production (TC = FC + VC). A graphical representation of FC, VC, TC is shown in Fig. 1;
Fig.1. General, fixed and variable costs.
average general (ATS or AC)- costs per unit of production (AC = TC / Q). At first, the average costs are quite high. This is due to the fact that large fixed costs are distributed over a small volume of production. As production increases, fixed costs fall on more and more units of output, and average costs quickly fall to a minimum at point K (Fig. 2). As production volume grows, the main influence on the value of average costs begins to be exerted not by fixed, but by variable costs. . Therefore, due to the fact that as production volume increases, the profitability of the resources used decreases, the curve begins to go up;
average variables (AVWITH)- variable costs per unit of production;
average constants (AFWITH)- fixed costs per unit of output;
limit (MS)- the cost of producing an additional unit of output. They show how much it will cost the enterprise to increase production volume by one unit or how much can be “saved” by reducing production volume by this last unit (MC = TCn – TCn- 1 = ΔTC / ΔQ = ΔVC / ΔQ).
Cost price- the initial cost of the costs incurred by the enterprise for the production of a unit of product.
Price- the monetary equivalent of all types of costs including some types of variable costs.
Price- the market equivalent of the generally accepted cost of the product offered.
Production costs- these are expenses, monetary expenditures that need to be made to create. For (the company) they act as payment for purchased goods.
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 costs are analyzed from the point of view of society as a whole, then, as a consequence, there arises the need to take into account social costs.
Let us clarify the concept of external effects. In market conditions, a special purchase and sale relationship arises between the seller and the buyer. At the same time, relationships arise that are not mediated commodity form, but having a direct impact on people's well-being (positive and negative externalities). An example of positive external effects is expenses for R&D or training of specialists; an example of a negative external effect is compensation for damage from environmental pollution.
Social and private costs coincide only if there are no external effects, or if their total effect is equal to zero.
Social costs = Private costs + Externalities
Fixed Variables and Total Costs
Fixed costs- this is a type of cost that an enterprise incurs within one. Determined by the enterprise independently. All these costs will be typical for all product production cycles.
Variable costs- these are 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
Opportunity Cost
Accounting and economic costs
Accounting costs- this is the cost of the resources used by the company in the actual prices of their acquisition.
Accounting costs = Explicit costs
Economic costs- this is the cost of other benefits (goods and services) that could be obtained with the most profitable possible alternative use of these resources.
Opportunity (economic) costs = Explicit costs + Implicit costs
These two types of costs (accounting and economic) may or may not coincide with each other.
If resources are purchased in a free competitive market, then the actual equilibrium market price paid for their acquisition is the price of the best alternative (if this were not the case, the resource would go to another buyer).
If resource prices are not equal to equilibrium due to market imperfections or government intervention, then actual prices may not reflect the cost of the best rejected alternative and may be higher or lower than opportunity costs.
Explicit and implicit costs
From the division of costs into alternative and accounting costs follows the classification of costs into explicit and implicit.
Explicit costs are determined by the amount of expenses for paying 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 as an employee. For the owner of capital property (machinery, equipment, buildings, etc.), previously incurred expenses for its acquisition cannot be attributed to the explicit costs of the present period. However, the owner incurs implicit costs, since he could sell this property and put the proceeds in the bank at interest, or rent it out 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- These are opportunity costs that take the form of cash payments to suppliers of factors of production and intermediate goods.
Explicit costs include:
- workers' wages
- cash costs for the purchase and rental of machines, equipment, buildings, structures
- payment of transportation costs
- communal payments
- payment to suppliers of material resources
- payment for services of banks, insurance companies
Implicit costs- these are the opportunity costs of using resources owned by the company itself, i.e. unpaid expenses.
Implicit costs can be represented as:
- cash payments that a company could receive if it uses its assets more profitably
- for the owner of capital, implicit costs are the profit that he could have received by investing his capital not in this, but in some other business (enterprise)
Returnable and sunk costs
Sunk costs are considered in a broad and narrow sense.
In a broad sense, sunk costs include those expenses that a company cannot return even if it ceases its activities (for example, costs of registering a company and obtaining a license, preparing an advertising sign or company name on the wall of a building, making seals, etc. .). Sunk costs are like a company's payment for entering or leaving the market.
In the narrow sense of the word sunk costs are the costs of those types of resources that have no alternative use. For example, the costs of specialized equipment manufactured to order from 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 influence the firm's current decisions.
Fixed costs
In the short run, some resources remain unchanged, while others change to increase or decrease total output.
In accordance with this, short-term economic costs are divided into fixed and variable costs. In the long run, this division becomes meaningless, since all costs can change (that is, they are variable).
Fixed costs- These are costs that do not depend in the short term on how much the firm produces. They represent the costs of its constant factors of production.
Fixed costs include:
- payment of interest on bank loans;
- depreciation deductions;
- payment of interest on bonds;
- salary of management personnel;
- rent;
- insurance payments;
Variable costs
Variable costs- These are costs that depend on the volume of production of the company. They represent the costs of the firm's variable factors of production.
Variable costs include:
- fare
- electricity costs
- raw materials costs
From the graph we see that the wavy line depicting variable costs rises with increasing production volume.
This means that as production increases, variable costs increase:
General (gross) costs
General (gross) costs- these are all the costs at a given time necessary for a particular product.
Total costs (total cost) represent the firm's total expenses for paying for all factors of production.
Total costs depend on the volume of output and are determined by:
- quantity;
- market price of the resources used.
The relationship between the volume of output and the volume of total costs can be represented as a cost function:
which is the inverse function of the production function.
Classification of total costs
Total costs are divided into:
total fixed costs(!!TFC??, total fixed cost) - the company’s total costs for all fixed factors of production.
total variable costs(, total variabl cost) - the company’s total expenses on variable factors of production.
Thus,
At zero output (when the firm is just starting production or has already ceased operations), TVC = 0, and, therefore, total costs coincide with total fixed costs.
Graphically, the relationship between total, fixed and variable costs can be depicted, similar to how it is shown in the figure.
Graphical representation of costs
The U-shape of the short-term ATC, AVC and MC curves is an economic pattern and reflects law of diminishing returns, according to which the additional use of a variable resource with a constant amount of a constant resource leads, starting from a certain point in time, to a reduction in marginal returns, or marginal product.
As has already been proven above, marginal product and marginal costs are inversely related, and, therefore, this law of decreasing marginal product can be interpreted as the law of increasing marginal costs. In other words, this means that starting at some point in time, additional use of a variable resource leads to an increase in marginal and average variable costs, as shown in Fig. 2.3.
Rice. 2.3. Average and marginal costs of production
The marginal cost curve MC always intersects the lines of average (ATC) and average variable costs (AVC) at their minimum points, just as average product curve AP always intersects the marginal product curve MP at its maximum point. Let's prove it.
Average total costs ATC=TC/Q.
Marginal cost MS=dTC/dQ.
Let us take the derivative of average total costs with respect to Q and obtain
Thus:
- if MC > ATC, then (ATS)" > 0, and the average total cost curve of ATC increases;
- if MS< AТС, то (АТС)" <0 , и кривая АТС убывает;
- if MC = ATC, then (ATS)"=0, i.e. the function is at the extremum point, in this case at the minimum point.
In a similar way, you can prove the relationship between average variable costs (AVC) and marginal costs (MC) on the graph.
Costs and price: four models of firm development
Analysis of the profitability of individual enterprises in the short term allows us to distinguish four models of development of an individual company, depending on the ratio of the market price and its average costs:
1. If the firm’s average total costs are equal to the market price, i.e.
ATS=P,
then the firm earns “normal” profits, or zero economic profit.
Graphically this situation is depicted in Fig. 2.4.
Rice. 2.4. Normal profit
2. If favorable market conditions and high demand increase the market price so that
ATC< P
then the company receives positive economic profit, as shown in Figure 2.5.
Rice. 2.5. Positive economic profit
3. If the market price corresponds to the minimum average variable cost of the firm,
then the enterprise is located at the limit of expediency continuation of production. Graphically, a similar situation is shown in Figure 2.6.
Rice. 2.6. A firm at its limit
4. And finally, if market conditions are such that the price does not cover even the minimum level of average variable costs,
AVC>P,
It is advisable for the company to close its production, since in this case the losses will be less than if the production activity continues (more on this in the topic “Perfect competition”).
Costs– monetary expression of the use of production factors for the production and sale of products.
Costs are used in business activities when developing business plans, in the economic justification of projects, and in financial analysis. In business practice and in legislative acts, the term “cost” is used to determine the amount of costs.
Cost price– costs associated with the production and sale of products, expressed in monetary form. These costs are calculated on the basis of the financial statements of the enterprise and correspond to explicit costs, which are also called accounting costs. These are costs for materials, wages, and depreciation of fixed assets.
Economic costs- the costs of using any factor of production, measured in terms of their best alternative use. They are divided into: external and internal.
Economic costs is the sum of external costs (And external) and internal costs (And internal):
And econ = And external + And internal
External costs– payment to third parties for sold resources. For example, payments for electricity, materials, wages of employees.
Internal costs– costs from using one’s own resources. For example, a private store or hairdresser. Own resources here are premises, own labor, and money capital. Internal costs include:
1) payment for land;
2) tax on buildings;
3) entrepreneur’s salary;
4) money (profit in the form of interest on capital);
5) normal profit.
Normal profit is the minimum fee required to retain entrepreneurial talent. It corresponds to the amount of interest on deposits in the bank. Accounting costs These are only external costs.
Economic profit (P econ) is equal to:
P econ =Q P – (And external + And internal),
where Q Р – revenue from sales of products.
Accounting profit (P accounting) is equal to:
P accounting = Q RP –I external.
Enterprise costs are divided into fixed and variable.
Fixed costs– these are those that do not depend on the volume of products produced.
Fixed costs include rent, depreciation, depreciation of intangible assets, wear and tear of wearable items, costs of maintaining buildings, services of third-party organizations, costs of training and retraining of personnel, non-capital costs associated with improving technology and organization of production, contributions to the repair fund , deductions for compulsory property insurance, expenses for remuneration of management personnel.
Variable costs depend on the volume of products produced.
Variable costs include:
1) material costs,
2) transportation costs,
3) expenses for remuneration of the main piece workers.
General costs equal to the sum of fixed and variable costs.
Average costs are called costs per unit of production.
Average costs (I av) are used to determine profit per unit of production (P unit).
P unit =C units +And Wed,
where C unit – unit price.
Marginal cost(And marginal) are the additional costs associated with producing one more unit of output (Δq).
And limit = ΔI transfer. /Δq,
where ΔI is the increase in variable costs. For example, the production of the first unit of output increases the amount of total costs from 100 to 190 rubles, so the marginal cost will be 90 rubles. The marginal cost of the second unit of production will be 80 rubles. (270-190), third – 70 rubles. (340-270). Marginal costs show what costs a company will have to incur to produce an additional unit of output and how much can be saved by reducing production volume.
There are short-term and long-term periods of enterprise activity. If a company has unpaid fixed costs, then it is in a short-term period and cannot close. After paying off obligations for fixed costs, the short-term period of the enterprise’s activity automatically turns into a long-term one. Here the entrepreneur makes a decision: to continue or terminate the activity. The division into short-term and long-term periods is conditional, and the true duration depends on the nature of production. An enterprise that makes a profit continues its activities, and one that suffers losses stops it.
Example. And post = 100 thousand rubles. R=100 thousand rubles And alternating =240 thousand rubles Q P =100*3=300 thousand rubles And general =340 thousand rubles. The loss is equal to 40 thousand rubles. (340 – 300). In the long term, the enterprise must close, since the loss is 40 thousand rubles, if it continues to operate. If it ceases its activities, the loss will be equal to 100 thousand rubles. (fixed costs). In any case, there is a loss, so the enterprise must close. The company is in a short-term period because it does not pay off its obligations to pay off fixed costs. What to do? 1. Declare yourself bankrupt, that is, sell your property, which will take quite a bit of time, if Q P< П перем. 2. Продолжить деятельность и за счет выручки от реализации продолжить гасить постоянные издержки в ущерб переменным, если Q РП >P AC The task comes down to minimizing losses. If the activity continues, the loss is less than 40 thousand. rub. Consequently, the enterprise in the long run must choose the option of continuing its activities.
Accounting for costs included in the cost of production is carried out in the form of estimates and in the form of calculations.
Estimate– accounting of costs for the annual volume of production for economically homogeneous elements (Table 1).
Table 1 - Contents of cost estimates for production
Purpose of estimate: the estimate is drawn up to plan the costs of producing the entire volume of production for the year, to draw up a financial plan, to identify savings reserves for cost elements.
Material costs include the cost of basic and auxiliary materials, components, transportation costs for moving materials from the central warehouse to workshops, delivery of finished products to warehouses for storage, to the departure station, the cost of fuel purchased from outside, the cost of all types of energy (electric, thermal, compressed air) purchased and produced by the enterprise itself, the cost of purchasing containers and packaging.
Returnable waste- the remainder of raw materials, materials, semi-finished products formed during the production process and which have lost completely or partially the consumer qualities of the original resource and, therefore, are used at increased costs or are not used at all for their intended purpose. Returnable waste is valued at a reduced value of potential use, but with increased costs.
Costing- this is an accounting of the costs of production and sales of a unit of production, grouped by expense items.
Costing includes the following expense items (Table 2).
Expenses for maintenance and operation of equipment(RSEO) include:
1) wages of auxiliary workers servicing equipment (adjusters, electricians, repairmen);
2) auxiliary materials (oils, emulsion);
3) costs for current repairs and maintenance of equipment;
4) depreciation of equipment, vehicles and inventory;
5) intra-factory movement of goods to workshops and warehouses;
6) wear and tear of low-value and fast-wearing devices.
Table 2 - Contents of product cost calculation
General production expenses include:
1) wages of management personnel and other shop personnel;
2) depreciation of buildings, workshop equipment;
4) costs of testing, experiments, research, rationalization and inventions;
5) costs of labor protection in the workshop.
General running costs include:
1) wages of plant management personnel;
2) depreciation of factory buildings;
4) travel expenses;
6) costs of rationalization and invention.
Other production costs include deductions for research and development, costs of warranty service and repair of products, losses from defects;
Non-production expenses– these are the costs of containers, packaging, delivery of products to their destination, advertising.
Profit and its types
Profit- This is a reward for entrepreneurial activity.
The following are distinguished: types of profit:
1) profit from sales of products;
2) profit from other sales;
3) non-operating profit;
4) gross profit;
5) taxable profit;
6) net profit.
Profit from product sales(P r) is equal to the difference between revenue from sales of products, excise tax, VAT and cost of production.
P r = Revenue – Excise tax – VAT – Cost
Revenue from product sales is determined by the product price multiplied by the quantity of product.
Profit from other sales(P etc.) – this is profit from the sale of fixed assets and other property of the enterprise, waste, and intangible assets.
P etc. = Property sale price – Property residual value
Non-operating profit(P non-real) is equal to the difference between income and expenses from non-real operations.
Income from non-operating operations include income from equity participation in the activities of other enterprises, dividends on shares, interest on bonds, income from leasing property, fines, penalties, penalties for violation of the terms of business contracts, income from compensation for losses caused, profits from previous years identified in the reporting year .
Expenses for non-operating operations include costs of canceled production orders, costs of production that did not produce products, costs of maintaining mothballed production facilities, losses from markdowns of inventories and finished products, losses on operations with containers, legal costs and arbitration costs, fines, penalties, penalties, expenses for compensation of losses caused, losses from operations of previous years identified in the reporting year, losses from natural disasters, negative exchange rate differences on foreign currency accounts.
Gross profit equal to the sum of profit from sales of products, profit from other sales and non-operating profit.
P gross = P r + P etc. + P unreal.
Taxable income is defined as the difference between gross profit and income tax benefits.
P taxable = P gross - Income tax benefits
Income tax benefits:
1) profit aimed at technical re-equipment of production;
2) profit allocated for environmental protection measures in the amount of 30% of capital investments;
3) the enterprise’s costs for maintaining the socio-cultural sphere on its balance sheet;
4) contributions to charitable purposes, environmental and health funds (no more than 3% of taxable profit).
5) additional benefits for small enterprises with up to 100 people:
a) profits allocated for construction and reconstruction are excluded;
b) in the first two years, no tax is paid on the profits of an enterprise for the production and processing of agricultural products, consumer goods, or the production of building materials.
Net profit(P net) is equal to the difference between taxable profit and income tax.
P net = P taxable – Income tax
The income tax rate since 2009 is 20%.
Topic 8. Enterprise planning
8.1 Essence, principles of planning and system of enterprise plans
8.2 Development of enterprise strategy
8.1 Essence, principles of planning and system of enterprise plans
Planning– this is the setting of goals for a certain future, analysis of methods for their implementation and resource provision.
Planning principles:
1) continuity. It lies in the fact that the planning process at an enterprise must be carried out constantly and plans must continuously replace each other.
2) flexibility. It consists in the ability of planning to change its focus in the event of unforeseen circumstances. Plans must be written in such a way that they can be changed.
3) accuracy. It means that plans must be specific, especially short-term plans.
The system of enterprise plans is reflected in strategic planning, which summarizes all types of planned activities in the enterprise, including long-term, tactical and functional planning. The main thing is that all management decisions are aimed at implementing the strategy.
A modern enterprise should develop the following types of plans.
1. Strategic plans:
o from one year to five years with prospects for improving production, new technologies, release of new products;
o main areas of activity for 10-15 years.
2. Current plans for 1 year.
3. Operational plans from 1 shift to 1 month.
The strategic plan includes the following sections:
Ø mission and goals of the enterprise
Ø analysis of the state and prospects for the development of the external environment
Ø Analysis of the state and forecast of competition development
Ø analysis of the strengths and weaknesses of the enterprise
Ø activities for the implementation of functional strategies
Ø resources needed to implement strategies.
Ø main stages of strategy implementation
Ø evaluation of the strategic plan.
Current (annual) plan. It is developed in full accordance with the strategic plan and serves as a tool for implementing the strategic plan.
It includes the following sections:
1) economic efficiency of production;
2) norms and standards;
3) production and sales of products;
4) logistics of production;
5) personnel and wages;
6) production costs, profits and profitability;
7) innovation;
8) investments and capital construction;
9) nature protection and rational use of natural resources;
10) social development of the enterprise staff;
11) social funds;
12) financial plan.
Operational plan. It is aimed at strict and timely execution of planned work and includes operational calendar plans, that is, schedules for the launch and production of parts, shift and daily assignments at the level of workshops, sections, and workplaces.
Operational planning is carried out for a workshop for 1 month, for a site or workplace - from a week to a shift.
8.2 Development of enterprise strategy
Under the enterprise strategy refers to the development of organizational and economic measures that have found concrete expression in annual and long-term plans necessary to achieve the set goals.
A clearly developed strategy provides the organization with flexibility in management, the ability and ability to quickly adapt, not to miss new opportunities opened up by the market and innovations, and to see development prospects.
Strategic management includes the following main stages.
Stage 1. Analysis of the external and internal environment of the enterprise. This is the initial stage in strategic management, as it forms the initial basis for determining the mission and goals of the organization and developing a development strategy. Strategic analysis is carried out on the basis of systemic and situational approaches in the study of various factors influencing the activities of the organization and determining the entire process of strategic management. The result of the analysis is obtaining a complete description of the object, identifying features, patterns and trends in its development.
Stage 2. Choosing a development strategy. At this stage, based on an assessment of the effect of all factors of the external and internal environment, the enterprise’s position in the market, strategic objectives and methods for solving them are determined. Activities for choosing a strategy should be carried out taking into account goals, linked to resources and time, and effectively combined.
The strategy selection process consists of the following stages: 1) developing strategies to achieve the goals; at the same time, it is desirable to propose and develop as many alternative strategies as possible; 2) refinement of strategies to the level of adequacy to the development goals of the enterprise and the formation of a general strategy; 3) adjustments to the overall strategy and development of individual supporting strategies. 2
There are four basic strategies.
1. Limited growth strategy. The development goals of this type of strategy are set “from what has been achieved” and are adjusted in accordance with changing conditions. This is the simplest, most convenient and least risky course of action. It is chosen by enterprises in established fields of activity with stable technology.
2. Growth strategy. It is characterized by a dynamic level of development with rapidly changing technology. This strategy is followed by enterprises seeking high rates of economic growth. This strategy includes:
ü Concentrated growth strategy (strengthening market position, market development, product development);
ü Integrated growth strategy (property acquisition; internal expansion)
ü Diversified growth strategy (production of new products).
3. Reduction strategy. This is a targeted and balanced reduction of this business due to changes in the market and the economy as a whole. Within this strategy, there are several options: liquidation, cutting off excess, reduction and reorientation.
4. Combined strategy. This is a useful combination of all the basic strategies discussed above. This strategy is usually followed by large enterprises operating in several industries.
There are several methodological approaches to planning strategic alternatives and choosing a strategy: matrix of product/market opportunities; Boston Advisory Group matrix – a method for assessing an organization’s position in the market, etc.
Stage 3. Execution of strategy. At this stage, strategic management shifts towards practical activities - distribution of work, responsibility for drawing up plans, schedules, methods of performing work. At this stage, the organizational management structure, decision-making system, and job descriptions are adjusted.
Stage 4. Monitoring and evaluating the implementation of the strategy. The control procedure provides feedback during the implementation of the strategy. The main objectives of control are:
ü providing timely and necessary information on the implementation of the chosen strategy;
ü establishing a system of indicators by which strategic control is carried out;
ü timely analysis of deviations and their causes;
ü introduction of appropriate adjustments in case of deviations in the process of strategy implementation.
Assessing the efficiency of economic activity and the state of the enterprise’s balance sheet
At the beginning of any course in economic theory, much attention is paid to the study of costs. This is explained by the high importance of this element of the enterprise. In the long run, all resources are variable. In the short run, some resources remain unchanged, while others change to reduce or increase output.
In this regard, it is customary to distinguish two types of costs: fixed and variable. Their sum is called total costs and is most often used in various calculations.
Fixed costs
They are independent of the final release. That is, no matter what the company does, no matter how many clients it has, these costs will always have the same value. On the chart they are in the form of a straight horizontal line and are designated FC (from English Fixed Cost).
Fixed costs include:
Insurance payments;
- salary of management personnel;
- depreciation deductions;
- payment of interest on bank loans;
- payment of interest on bonds;
- rent, etc.
Variable costs
They directly depend on the quantity of products produced. It is not a fact that the maximum use of resources will allow the company to obtain maximum profit, so the issue of studying variable costs is always relevant. On the graph they are depicted as a curved line and are designated VC (from English Variable Cost).
Variable costs include:
Raw material costs;
- costs of materials;
- electricity costs;
- fare;
- etc.
Other types of costs
Explicit (accounting) costs are all costs associated with the purchase of resources that are not owned by a particular company. For example, labor, fuel, materials, etc. Implicit costs are the cost of all resources that are used in production and that the firm already owns. An example is the salary of an entrepreneur, which he could receive as an employee.
There are also return costs. Refundable costs are those whose value can be returned during the course of the company's activities. The company cannot receive non-refundable payments even if it completely ceases its activities. For example, costs associated with registering a company. In a narrower sense, sunk costs are those that have no opportunity cost. For example, a machine that was custom-made specifically for this company.
