Internal and external costs
Posted: Thu Jan 30, 2025 10:16 am
Investments in assets that the company controls are called internal. For example, maintenance of its own production facility.
External - this is payment for resources that are outside the ownership of the company owners. For example, payment for contractors.
Overt and Hidden Costs
Open expenses or explicit ones are those that are reflected in the financial statements. These are all direct and indirect costs: wages, utility costs, purchase of materials, rent of premises, etc.
Hidden costs are lost opportunities for a company that could have been gained by using its resources. For example, opening a dessert production facility would have brought in additional income, but instead the premises were rented out.
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Formulas and example of calculating the company's costs
In most cases, financial costs are calculated by combining all payments or by groups. However, there are expenses that cannot be estimated in monetary terms. In such situations, specialized equations are used.
Type of company expenses Calculation formula Designation in the formula
Alternative (economic) Vd - Fd Vd – possible income
Fd – actual income
Medium-permanent Pz / Op Pz – fixed costs
Op – volume of goods produced
Average-variable PrZ / Op PrZ – variable costs
Op – volume of manufactured products
Marginal Cost of a Firm UZ / UOP Uz - increase in costs
UOP – increase in the volume of manufactured products
Profitability is the income that an saudi arabia email list organization could earn if management made a different decision. It is calculated by multiplying the current rates by the quantity of goods sold at different prices.
The least variable and constant costs of a company are those incurred in producing one unit of output. These are the average costs of the company.
The costs of producing additional goods are called marginal. They reflect how much the volume of production will increase with an increase in the costs of purchasing raw materials and supplies.
Formulas and example of calculating the company's costs
Source: shutterstock.com
Example of structural costs of an organization. An agricultural company specializing in growing grain crops recorded the output of 2,000 tons of products in 2020. During the year, the following was spent:
for the purchase of seeds - 0.22 million rubles;
land rent - 0.1 million rubles;
equipment maintenance - 0.6 million rubles;
payment for the work of workers employed in the field and warehouse - 3.6 million rubles;
payment of salary to the accountant and remuneration to the head of the holding company - 1.6 million rubles;
fulfillment of tax obligations - 0.76 million rubles.
The corporation was given the opportunity to purchase all stocks at 36 rubles per kilogram, but the manager rejected the idea of concluding a contract. Ultimately, grain products were sold at a price of 26 rubles per kilogram. Thus, the enterprise was able to earn 26 million rubles, given the sales volume of 1,000 tons.
The costs of improving seed quality can be divided into direct costs associated with production, accounting, the possibility of capital recovery and achieving efficiency.
Land rental costs remain constant, direct, production-related and controllable.
Formulas and example of calculating the company's costs
Source: shutterstock.com
Equipment maintenance is more related to the production and financial costs. Paying workers is considered a direct and important cost related to production, accounting, and the possibility of return.
Advance payment of the accountant's salary and incentives for the top manager are included in a number of indirect and non-production expenses.
It is known that companies' offers for a more advantageous contract may lead to lost profits or economic losses. A special formula is used to evaluate them:
UV (ED) = Vd - Fd,
in which:
Vd is the potential profit,
Fd - real profit,
UV (ED) - lost profit or economic damage.
You can calculate the potential income by estimating the profit at the proposed price:
36 rubles per kilogram * 1000 tons = 36 million rubles.
36 million rubles - 26 million rubles = 10 million rubles - lost profit or economic costs.
External - this is payment for resources that are outside the ownership of the company owners. For example, payment for contractors.
Overt and Hidden Costs
Open expenses or explicit ones are those that are reflected in the financial statements. These are all direct and indirect costs: wages, utility costs, purchase of materials, rent of premises, etc.
Hidden costs are lost opportunities for a company that could have been gained by using its resources. For example, opening a dessert production facility would have brought in additional income, but instead the premises were rented out.
Read also!
"Cross-marketing: 5 examples and 8 mistakes"
Read more
Formulas and example of calculating the company's costs
In most cases, financial costs are calculated by combining all payments or by groups. However, there are expenses that cannot be estimated in monetary terms. In such situations, specialized equations are used.
Type of company expenses Calculation formula Designation in the formula
Alternative (economic) Vd - Fd Vd – possible income
Fd – actual income
Medium-permanent Pz / Op Pz – fixed costs
Op – volume of goods produced
Average-variable PrZ / Op PrZ – variable costs
Op – volume of manufactured products
Marginal Cost of a Firm UZ / UOP Uz - increase in costs
UOP – increase in the volume of manufactured products
Profitability is the income that an saudi arabia email list organization could earn if management made a different decision. It is calculated by multiplying the current rates by the quantity of goods sold at different prices.
The least variable and constant costs of a company are those incurred in producing one unit of output. These are the average costs of the company.
The costs of producing additional goods are called marginal. They reflect how much the volume of production will increase with an increase in the costs of purchasing raw materials and supplies.
Formulas and example of calculating the company's costs
Source: shutterstock.com
Example of structural costs of an organization. An agricultural company specializing in growing grain crops recorded the output of 2,000 tons of products in 2020. During the year, the following was spent:
for the purchase of seeds - 0.22 million rubles;
land rent - 0.1 million rubles;
equipment maintenance - 0.6 million rubles;
payment for the work of workers employed in the field and warehouse - 3.6 million rubles;
payment of salary to the accountant and remuneration to the head of the holding company - 1.6 million rubles;
fulfillment of tax obligations - 0.76 million rubles.
The corporation was given the opportunity to purchase all stocks at 36 rubles per kilogram, but the manager rejected the idea of concluding a contract. Ultimately, grain products were sold at a price of 26 rubles per kilogram. Thus, the enterprise was able to earn 26 million rubles, given the sales volume of 1,000 tons.
The costs of improving seed quality can be divided into direct costs associated with production, accounting, the possibility of capital recovery and achieving efficiency.
Land rental costs remain constant, direct, production-related and controllable.
Formulas and example of calculating the company's costs
Source: shutterstock.com
Equipment maintenance is more related to the production and financial costs. Paying workers is considered a direct and important cost related to production, accounting, and the possibility of return.
Advance payment of the accountant's salary and incentives for the top manager are included in a number of indirect and non-production expenses.
It is known that companies' offers for a more advantageous contract may lead to lost profits or economic losses. A special formula is used to evaluate them:
UV (ED) = Vd - Fd,
in which:
Vd is the potential profit,
Fd - real profit,
UV (ED) - lost profit or economic damage.
You can calculate the potential income by estimating the profit at the proposed price:
36 rubles per kilogram * 1000 tons = 36 million rubles.
36 million rubles - 26 million rubles = 10 million rubles - lost profit or economic costs.