Variable and fixed costs of the enterprise

Costs play a large role in business development, because they directly affect profit. In modern economic science there are two types: fixed and variable costs. Their optimization allows you to increase the efficiency of the enterprise.

First you need to define the short and long term. This will help to better understand the essence of the issue. In the short run, production factors can be constant and variable. In the long run, they will only be variables. Let's say a building is a factor of production. In the short term, it will not change in any way: the company will use it to, for example, place machines. However, in the long run, a firm may buy a more suitable building.

Fixed costs

Constant is the cost that in the short term does not change even if production has increased or decreased. Let's say the same building. No matter how many goods are produced, the rent will always be the same. You can work at least the whole day, the monthly fee will still remain unchanged.

Comprehensive analysis is required to optimize fixed costs. Depending on the specific unit, the solutions may vary significantly. If we are talking about rent for a building, then we can try to lower the price of accommodation, take only part of the structure so as not to pay for everything, etc.

Variable costs

It is not difficult to guess that variables are called costs, which can vary depending on a decrease or increase in production volumes in any period. For example, to make one chair, you need to spend half the tree. Accordingly, to make 100 chairs, you need to spend 50 trees.

Optimizing variable costs is much easier than fixed. Most often, you just need to reduce the cost of production. To do this, for example, you can use cheaper materials, upgrade technology or optimize the location of jobs. Suppose, instead of oak, which costs 10 rubles, use poplar 5 rubles each. Now it is necessary to spend not 50 rubles, but 25 on the production of 100 chairs.