Enterprise Theory : Costs



•Basic cost groups consist of:
ooperating costs:
vmaterial consumption
vPower or energy consumption
vconsumption and use of external works and services (production cooperation, telecommunications,
consulting, repair, etc. services)
vpersonal expenses (wage expenses including health and social insurance)
vdepreciation of long-term tangible and intangible assets
ofinancial costs (interest, insurance premiums, taxes)
oextraordinary costs (shortage, damage, natural disasters)
o

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Example
Decide whether it is an operational, financial or extraordinary expense:
•car depreciation
•paper consumption in the production of magazines
•consumption of office supplies
•shortfall in the cash register
•insurance premiums against natural disasters
•internet service fee
•exchange rate loss
•social insurance

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Breakdown of costs according to place of origin and responsibility (unit and overhead costs)
•Where did the costs occur and who is responsible for their occurrence?
•Classification by internal company departments:
oProduction costs:
vtechnology costs:
Øunit costs (directly related to the performance unit (t, kg, piece,...), proportional dependence
on production volume)
Øoverheads
vcosts of service, provision and management - overhead costs
oNon-production costs:
vsales management
vadministrative overhead
vsupply overhead etc.

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Cost breakdown (direct and indirect costs)
•what the costs were spent on (which products and services)
•very important for the business world, because it can find out:
oprofitability (profitability) of individual items of products and services provided
ohow individual products or services contribute to the creation of the economic result (profit) and
thereby influence the range of products and services on offer
owhether to operate the given service in-house or rather to buy the given service (outsourcing)
othe minimum price for the business area
•we monitor costs depending on the method of assigning costs to cost bearers (per performance,
so-called calculation unit):
odirect costs (unit costs and overheads that are directly related to a certain product)
oindirect costs (common to a group of products, i.e. overhead costs that cannot be assigned to a
specific product)

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Example
Determine whether it is a direct cost or an indirect cost:
•paper consumption in book production
•company management salaries
•consumption of office paper
•brand promotion
•power consumption
•material warehouse cleaning costs
•social insurance
•water, sewage, waste disposal

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Breakdown of costs depending on changes in production volume
•it makes sense when managing costs for a period of less than 1 year
•variable costs – their amount depends on the volume of production
•fixed costs – their amount is not tied to the volume of production
•
n in [CZK/pc, bm ]
N in [CZK]
N in , n in
Production volume Q [pcs, bm, …]
F [CZK]
F
f [CZK/piece, bm, …]
1
Production volume Q [pcs, bm, …]

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Example
Decide whether it is a fixed or variable cost in each of the following cases:
•monthly wages of company management
•paper consumption in book production
•gas consumption for heating the production hall
•cost of purchasing goods (store)
•brand promotion
•electricity consumption in an office building
•internet connection fee
•petrol consumption of a taxi car
•gasoline consumption in a car used for the needs of executives

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  C = f ( Q ) = ( v x Q ) + F
C = V + F
where
F … total fixed costs [CZK]
v … unit variable costs [CZK/piece, CZK/kg, CZK/l, …]
V … total variable costs
Q … volume of production [pcs, kg, l, …]

Cost item
The amount of costs
[CZK]
Variable
costs [CZK]
Fixed
costs [CZK]
Material consumption
66,000
60,000
6,000
Wages of pastry chefs
45,000
15,000
30,000
Administrative staff salary
20,000

20,000
Technological energy
(production equipment drive)
15,000
15,000

Non-technological energy
1000

1000
Depreciation of tangible fixed assets
20,000

20,000
TOTAL
167,000
90,000
77,000
Assignment: Determine the cost function for the production of 10,000 A piece of candy.
C = (v x Q ) + F
V = v x Q
v = V/ Q

Cost item
The amount of costs
[CZK]
Variable
costs [CZK]
Fixed
costs [CZK]
Material consumption
66,000
60,000
6,000
Wages of pastry chefs
45,000
15,000
30,000
Administrative staff salary
20,000

20,000
Technological energy
(production equipment drive)
15,000
15,000

Non-technological energy
1000

1000
Depreciation of tangible fixed assets
20,000

20,000
TOTAL
167,000
90,000
77,000
Solution:

Thank you for your attention J