essence of costs and income of enterprises
income for enterprises
Types of costs
2 Main ways of
decreasing the costs Main ways of increasing the income
The list of
company or organization, regardless of ownership (private or public) in the
implementation of its activities receives some income. The relevance of this
topic is that in conditions of market relations incomes of enterprises and
organizations have direct relevance to the budgetary system of the Republic of
purpose of this paper is to explore the nature of income and costs.
methodological basis was: Internet information sources, the book of domestic
economy is market type of economy. Kazakhstan was the first country among CIS
that received a status of country having market economy from the Ministry of
Trade, USA. In 2000 this fact was confirmed also by European
The economy started to change since 1991 after the collapse
of Soviet Union. In 1990s many banks gave loans to people and organizations
without knowing how to receive them back and according to what conditions it
should be done. Today the situation is completely different: they know how to
deal with loans business but there is no high demand especially after everybody
felt the financial crisis and the crisis in construction sphere. Nowadays many
enterprises pay special attention to the analysis of income and expenditure and
their comprehensive characterization as many of the business people understood
the importance of making, keeping and proper spending of money. Consideration
of this issue is essential for the proper functioning of enterprises and
organizations subordinated to the market laws. Right management decisions can
be made only on the basis of clear understanding of income and costs question.
Making the right decisions will lead the enterprise to financial independence
paper gives information about resources of income, income allocation and types
of costs in the section of “Economic essence of costs and income of
enterprises”. It may be useful for entrepreneurs of small and medium
enterprises, students of economic and financial departments of universities and
problems of profit maximization and costs minimization are also considered in
this paper. These topics are always very topical, because the main target of
any enterprise is to maximize profit. How to do it? One of the ways is
minimization of costs. Strive to minimize costs - not to act against the
interests of business for avoiding costs. This should be solved by finding the
best possible optimal ratio of revenues and expenses. The ways to minimize
costs are given in the “Main ways of decreasing the costs” section.
topicality of this paper is the fact that income and costs (besides the
financial results such as profit and expenditures) are the most important
indexes of the enterprise’s activity and main elements in the report about
financial results. Financial results of the enterprise are found by comparing
income and corresponded costs. That is why a proper understanding of income
allocation and what types of costs there are, is crucial for the successful
management of the enterprise.
1 Economic essence of costs and income of enterprises
enterprise’s target is to make profit. In order to make it a company should
understand where comes from the income and where goes out costs. Knowing the
resources of income and types of costs will allow the enterprise to manage them
successfully, which means it will be able to make profits. Companies and
enterprises in different fields are part of whole economy. Active and
profitable companies rise economic activity and contribute to the development of
national economy. Big companies become bridges between countries and states.
enterprise has to have a system of accounting, managing and planning of costs
and resources to finance its activities. Systems are constructed on the basis
of income and costs.
Resources of income for enterprises
define resources of income for enterprise all activities should be divided
main and operational activities (production and selling products and services);
financial activity (taking loans and giving them to other enterprises;
enterprises’ taking part in activities of other companies; operations of
enterprise on the financial markets, differences in exchange rates etc);
extraordinary items (operations that are not usual to activities of the
division of activities is very important as it allows to define what part of
income was received from main activity, what part was received from other
sources such as those that are unusual for a particular enterprise’s activities
and cannot be considered as some constant source of income.
in the system of financial management it is required to have following rates
and profit indexes:
net income from selling of products (providing services) – is gross revenue
from sales minus value added tax, excise tax, returned products and price
discounts. This index is the real base for further counting of profit index and
evaluation of profitability;
gross profit from sales – net income from sales minus production expenditures
of sold goods.
index allows to analyze the effectiveness of production activity of the
profit (loss) from main activity (operational profit or operational loss) –
gross profit from sales minus management costs and sales costs. This index
reflects the influence of management and sales costs to financial sales result;
profit from financial activity – balance of income and cost in hand by
financial activity. This index is needed for defining the profit from
production and economic operations including such sources of profit as
receiving interest and dividends, operations with foreign currency etc.
profit from ordinary economic operations – sum of profits from main economic
operations and profit from financial activity;
profit (loss) before taxes. This index is the point from which the accounting
profit transmits into taxable profit.
(or reported) profit – is the profit, which was counted in accordance with
requirements of book keeping. Main target is to define the accounting profit – to
show the effectiveness of enterprise’s activities for reported period.
keeping is made for gathering and analyzing information about income and costs
of the enterprise and about net result of activities for making management
decisions in future periods. After the target was achieved the result (profit
before taxes) should be adjusted in accordance with tax law of the country. So,
the taxable profit is accounting profit, that was recounted in accordance with
tax law requirements;
net profit (net loss) – profit after taxes. In conditions of market economy it
is the most important index of enterprise’s activity. This index is always at
the center of attention for managers and financial markets. The existence of
the enterprise, working places for its employees, paying the dividends are
depended on dynamics of net profit
The rights and opportunities of allocation and using of the income
are very important for any enterprise because income is the main source of
financial, production and social development, financial development of its
The system of income allocation and utilization should stimulate
further development of current particular type of business and expansion to new
directions. It should also increase the interest for making more money
The order for income allocation and utilization for commercial
enterprise are defined by the methodology of income that is accepted in
particular society at this stage of its development
Current order of income allocation corresponds to current stage of
market relations development, thus an enterprise should take part in forming
the state budget. The rest part of the income should be allocated between
owners and investors of the enterprise. If there were other financial resources
the income should be allocated between them either in accordance with concluded
State influence on the choice of directions of net profits is made
through taxes, tax exemptions, and economic sanctions.
Such system of income allocation began in 1964 in the Soviet Union. The system passed through three stages of development. The essence of the
reform of income allocation is an ongoing decentralization of exemption of
enterprise income in favor of the state and reduction of financing enterprises
from the state budget. The current system of income distribution or allocation of
domestic enterprises began to perform the same function as was adopted in
developed countries in the West.
Thus, the transition to a market economy in Kazakhstan the system
of income assigning focuses on the current overseas system.
Common to all businesses regardless of ownership and types of
activity is the distribution of profits in accordance with the statute and the
collective agreement for the following purposes:
1) payments to the budget;
2) contributions to the non-budgetary funds established by a
decision of the Government or local authorities;
3) the formation of the accumulation fund;
4) establishment of a fund of consumption;
5) charitable purposes;
6) other purposes (saving for the purchase of property, etc.).
In Kazakhstan there are following taxes:
a) corporate tax
b)value added tax;
c) excises and other taxes.
The list and the method of calculating taxes is subject to change
Net income of the company after taxes and deductions
(entrepreneurial income) is used to form:
Development Fund (accumulation fund), which corresponds to the
growth of fixed and floating assets of the enterprise (capital gains);
Stock consumption (to increase the material interest of employees
to improve efficiency and profitability of the enterprise);
Contingency fund designed to finance unforeseen costs associated
with the risk of economic activity, other funds, if any founding documents,
laws and requirements of practice.
The size of the funds is not strictly regulated, except for
certain areas of their use.
Accumulation fund and the fund of consumption - a special purpose
funds. They are formed, if foundation documents mention this. The accumulation
fund is created to finance the production development of enterprises: financing
of capital investments, expansion and reconstruction of enterprises, to finance
new development, to pay off loans and interest thereon, for the maintenance of
facilities for cultural and educational work and others. Thus, the accumulation
fund is a source for entities, accumulating earnings and other sources to
create a new property, the acquisition of fixed assets, working capital, etc.
The accumulation fund indicates a growing wealth of the company, extending its
Consumption fund - the source of funds that were saved for
implementation of social development (excluding capital expenditures) and
financial incentives for personnel. The consumption fund is directed to the
- the payment of lump-sum compensation for work results at the end
of the year;
- for benefits;
- to pay for transport;
- to grant interest-free loans;
- to establish entitlements to pensions of working pensioners;
- one-time incentives for employees;
- establishment of labor and social benefits;
- the payment of dividends on securities.
Reserve fund is created by an enterprise in case of termination of
its activities to cover accounts payable. It is mandatory for joint stock
companies, cooperatives, associations, enterprises with foreign investment. The
company in addition to the reserve fund shall transfer the share premium, ie,
the amount of the difference between the sale and the nominal value of shares,
the proceeds of their implementation at a price higher than face value. This
amount is not subject to the use and distribution, except the cases when shares
are sold at a price below face value.
Contingency fund of joint stock company is used to pay interest on
bonds, dividends on preferred shares, in case of insufficient net income for
Planning the distribution of profits is carried out in two stages:
On the first the need of profit is determined by the following directions
of its use:
a) to finance the development of material and technical base - the
advance of capital. The need for profit in this area is determined on the basis
of expert evaluation of requirements for equipment modernization, taking into
account other sources of funding
b) to finance the growth of own revolving funds - advancing its
own working capital. Calculation of the need for additional working capital may
be made by technical and economic calculations or by direct calculation on the
basis of data on the availability of working capital at the beginning of the
planning period, projected growth rates of turnover, taking into account
changes in the participation of its own funds to pay for goods and trade in
shares credited to total value.
c) for the establishment of financial reserves. The need for
financial reserves is defined in two ways: either as a percentage of net profit
specified in the constituent documents, or on the basis of financial need due
to growth and expansion of business activity.
d) for repayment of long-term and medium-term bank loans and paying
interest on them. The need for these resources is determined by the contract
and terms of obtaining and repayment of these loans;
e) to pay off other types of credit obligations of the enterprise
(bonds) and interest payments on them;
f) use the profit for the acquisition of credit obligations,
shares of other companies is mainly determined by an expert selected by the
light of targets in the development of the enterprise (flow of capital into
other forms of economy, market expansion, etc.);
g) for financing of unions, associations, corporations and other
horizontal structures, which is a member of the enterprise. The need for
profits for these purposes is determined by the contract and the charter of all
these structures, either as a percentage of profits or volume of goods
turnover, either in absolute amount;
h) for social enterprise development and improving material
incentives, taking into account the needs of social, cultural, housing events
and its cost. Increase of material incentives is possible by adopting the
principle of participation in profits;
i) to ensure compliance with tax obligations to the state;
j) to pay dividends (if such costs are mentioned in the foundation
documents). The economic basis for this payment of dividends on stocks and
bonds, except shares of a joint stock company, according to many experts, is
that owners play roles of creditors of the of the enterprise and should receive
a portion of profits as dividends, which corresponds to the cost of debt
capital on the markets of production factors (the lower limit ) or equal to the
additional profits earned by the enterprise-borrower from the use of additional
capital in the planning period in proportion to the share capital in the total
amount of the funds (upper limit).
The second step compares the amount of demand for income in all
areas of its use with a capacity of enterprises to receive it.
Total demand for profits by the above mentioned directions of its
use is one of the variants of the value of the target company's profit.
Final decisions on the planned uses of profits made after the
profit plan taking into account the potential to receive it.
Each company produces an annual plan and budget estimates of the
actual use of the accumulation fund and the consumption fund. Each of these
estimates show balance the flow of funds in the financial year, expenditure on
specific areas, the balance at the beginning of a future period. The actual
performance of the estimates is analyzed with planned developments.
Retained earnings of previous years may be directed towards
replenishment of the reserve fund, to increase the authorized capital, to
increase funds for special purposes (to purchase the property, etc.) (http://www.xserver.ru/user/pkpri/5.shtml).
Types of costs
Production of any commodity is a cost of
economic resources - raw materials, fuel, energy, labor, transportation and
other services. Payment for all of these resources represents a cost of
production. Due to the fact that not all of these resources are actually paid,
that is, some of which the company can use as a free, economists distinguish
between explicit and implicit costs.
Explicit costs (external accounting) - a
cash payment for the resources obtained from (wages, payment for the supply of
raw materials, transportation, legal, consulting and other services).
Implicit (internal) costs - are costs associated with the use
of enterprise’s own resources. In contrast to the explicit, these costs are not
paid, are not reflected in financial statements, they are hidden, ie, they are
firm's own resources used in its manufacture. The magnitude of these costs is
determined by income, which could bring these resources in their most
profitable alternative use. The existence of implicit costs can be illustrated
by the activities of the firm or enterprise, which uses owned and rented
production facilities, equipment, machines. The company pays for the use of
foreign capital rent, which includes interest and depreciation. Since the
alternative use of company-owned capital, such as giving it for rent, would
have brought in revenue as interest, then the firm must take into account the
cost of using own capital. They represent the interest on capital.
There is another point from which costs may be considered.
Part of used economic resources may be owned by a firm, owned by their
respective owners. Another part of the resources the firm acquires from
suppliers who are not owners of the firm. Thus, firm may have production
facilities and equipment, vehicles, etc. At the same time, the company buys raw
materials, fuel, energy, labor services, etc. Using any resource entails costs.
Costs for use of own land is called rent, or internal rent, the costs of using
entrepreneurial skills of company owner are called the normal profit, costs for
use of company-owned industrial buildings, equipment and other items of real
capital is called interest.
Thus, economists include into the economic costs of
production all costs - internal and external, including rent into internal
costs, normal profit and interest in order to attract and use resources in the
competitive enterprise. Accounting costs are equal to the total external costs.
From these definitions it follows that the economic costs are bigger than
accounting costs for the amount of internal costs of the firm.
Accounting department registers production costs. The
accountant records the actual costs that have occurred in the last period,
determines the actual total costs in cash. If the production costs include only
explicit costs, then their sum can be understated, and the difference between
the proceeds from sales and explicit costs will be overstated.
Sunk costs (may be also referred as Fixed costs). There are
also so-called sunk costs, which the company has spent, but won’t be able to
recover. Sunk costs do not influence the firm’s decision-making on actions in
future. But we can estimate the previous decisions that led to the emergence of
The volume of total cost of firm varies depending on the
output Q. If the output increases, then total costs increase also. If
production reduces, company’s costs also reduce.
amount of some types of costs remains constant, independent of production
volume. Fee for leased space, equipment, other costs remain constant, no matter
how varies the production volume. The firm’s costs, the amount of which does
not depend on the volume of output, called the fixed costs (FC).
At the same time, the costs of materials, fuel, energy,
salaries and other change along with the output. If the production output stops,
then such costs reduce almost to zero. With the growth of production variable
costs increase, while the total value of fixed costs remains unchanged. Costs
of production, the magnitude of which depends on the volume of output, called
the variable (VC) cost of the firm. Total (TC), or gross, the cost to the
company equal to the sum of fixed and variable costs: TC = FC + VC. Fig. 1
shows the line of fixed costs, variable costs and total costs curves. These
forms of curves have most of the firms.
Fig. 1. Constant, variable and total costs of firm
So, there are:
Costs that don't change over a period of time and don't vary with
output. E.g. salaries, rent, tax, insurance, heating and lighting. Fixed costs
can also be called indirect costs as they are not directly associated with the
final product. Fixed costs have to be paid even if the company is not producing
Costs that vary directly with output so when output increases,
variable costs also increase. E.g. raw materials, electricity. Variable costs
can also be called direct costs as they are directly associated with
These costs have fixed and variable elements. E.g. a person
working for the company may have a fixed salary but may also earn commission on
Total costs are calculated by adding together fixed, variable and
2 Main ways of decreasing the costs
Production costs depend on the effective use of economic resources
and are determined by the cost of unit of production.
In order to minimize costs, the company shall take the following
• what is the best way to organize the production of existing
• which new production capacities to choose taking into account scientific
and technological progress;
• what is the best way to adapt to discoveries and inventions.
Correct solution of these problems should lead to profits.
2 Graph showing the number of products in the function of minimum production
- is a graphic representation of the production function with a straight line,
which shows all the combinations of factors of production, the use of which
requires the same cost.
- volume of production;
C1, C2, C3 - isocosts;
= B * (K * L) – firm’s production function in the long run.
curve of Q determines the volume of production, in which the enterprise should
carry minimal level of costs.
can not select C0 isocost, as there is no such combination of factors that
would provide the output Q when their value is equal to C0. Given volume of
production can be achieved at a cost of C2, where the cost of capital and labor
are, respectively: K2L2 at point A and K3L3 at point B, but in this case the
costs will be minimal, so the chart shows that the most effective solution -
the point N ( K1L1), which ensures minimization of production costs. Since prices
on the factors of production change, C1 changes its slope to C3. Since the
speed of capital increases, the best option would be the point M (K4L4), which
ensures minimization of costs.
The equilibrium is determined by the terms of achieving
maximization of profits. To achieve this, the firm must use variable resources
in such quantities, that ratio of norms of technological substitution of one
resource to another, equal to the ratio of prices of these resources.
Constant effect of production scale growth is characterized by the
fact that the volume of production increases in the same proportion as the cost
P - price realization.
Negative effect of production scale growth is characterized by the
fact that the output increases less than the cost of resources.
Positive effect of production scale is characterized by the fact
that the volume of production increases in the proportion that exceeds the
proportion of the increased costs of resources.
Main directions of reducing the costs of production:
1. The use of scientific and technological progress;
2. Improving the organization of production on the basis of
productivity increase through reduction of working time wastes;
3. State regulation of economic processes
is another essence of costs decreasing. Costs can be decreased if in the
company was created the system of effective control over costs. Such system
involves classification of costs, depending on how easily they can be adjusted
using the alternative solutions, and consists of the following elements:
you can reduce costs by simply starting counting them systematically. It was
noticed, for example, that when the company begins to record outgoing long
distance and international calls to their staff on the date, time and purpose,
the total number of calls is reduced due to a decrease of personal calls.
support of cost accounting system.
should be attracted to follow the cost accounting system. If there is a strong
staff resistance to change cost accounting system the leader should explain the
need to reduce costs, make staff understand that their proposals regarding savings
are of high importance and will be valued in future (maybe financially).
of the causes of costs in the company.
analysis allows to take the necessary steps immediately to eliminate the causes
of an undesirable increase in cost. Thus, if the entertainment expenditures
rise, it is useful to determine why employees are spending company’s money in
expensive restaurants. Company actively expands its clients base and the number
of signed contracts grows? Or because the control over the entertainment
expenditures became weak?
to reduce costs could be as follows:
Categorization of expenses by clearly defined categories. For example, the cost
of raw materials, labor, all direct production and general business
Focusing on the most significant costs, determine which of them should be
Planning and implementation of cost reduction.
approaches to reduce costs
is general recommendation, the applicability of which is listed in the table. 1
(asterisks shows the relevance of activities from the list for those or other
Know the measure. Do not spend more than necessary to your business now.
New or old partners. Try to negotiate more favorable terms with suppliers,
contractors and other partners with whom you have worked before the crisis. If it
is not possible to agree with old partners, find new partners, which may offer
more favorable terms for you.
Horizontal integration. Develop horizontal integration, which involves joint
purchases together with other buyer from one supplier. For example, two
commercial companies can join to get discounts for large volume purchases.
Vertical integration. Develop vertical integration, which involves the
development of close relationships with suppliers to control and possibly
reduce the cost of materials and services.
To buy or produce. Check what components (materials, raw materials, etc.) your
company may produce, and which are cheaper to purchase from other
Rent or own. Check what is cheaper: to rent a room (equipment, etc.) or buy it
to use on the rights of the owner.
Forms of payment. Look for new payment options.
Tighter control. Simply create better control: consider the costs and they will
Optimization of technological processes. Check whether it is possible to
achieve savings through improved technological processes and work organization,
for example, spending less raw materials per unit of output.
Activities or items
that incur costs
The cost of raw
Maintenance of equipment
Total economic costs
(accounting, purchasing department, sales, training, etc.)
loading and unloading, etc.
Fig. 3 Table of activities and items that incur costs
3 Main ways of increasing the income
Directed to production at lowest costs, the firm typically
sees the problem not as a whole target but as means of solving much more
general problem - the maximization of profit. This is the main goal for any
company, even if it is not formulated as a leading motive for its activities.
In some cases, firms can aim not at maximizing profits, but other
tasks, such as increased sales, achieving social recognition and for
implementation of those tasks it sacrifices some part of its profits. Such
motivation of firm’s behavior is called satisfactory behavior. However, even in
this case one is in need of maximizing profits, at least in the long run,
because only the desire for profit will rationally allocate resources, ensure
high efficiency and, consequently, will allow successful implementation of the
maximization for the firm means finding ways to obtain maximum economic profit,
thus the difference between total income and overall costs.
= TR - TC
- total or net economic gains;
- total revenue, defined as the product of the number of goods sold by its
- total costs, including both direct and indirect.
the production and sales will be increased, then at constant prices the total
revenue and total costs will increase: revenue - due to increased amount of
goods sold, cost – due to the law of diminishing returns. Profits will occur as
long as income growth will exceed the increase in costs, and its size will
depend on the ratio of these quantities. Therefore, to solve the problem of
profit maximization, it is important to consider not common, but limit values
of the indices considered.
amount added to the total revenue from each additional unit of output, would be
a marginal revenue. And marginal costs are those costs that are added to the
total costs with each unit of output.
long as marginal revenue exceeds marginal cost, the firm makes a profit and,
hence, it makes sense to increase output. But when the increase in income from
the last unit of output equals the growth in production costs of this unit, the
growth of production should be halted, because the increment to profits will be
is possible to formulate a general rule of profit maximization: The firm will
increase output until the moment when additional costs of producing an
additional unit of output equals the marginal revenue from its sale. This is
called the rule MC = MR.
difference between the MC and MR will be a marginal profit (PM) which was
received from the sale of each additional unit of output. If MR> MC, PM
indicator will be positive, indicating that each additional unit of output adds
a part to the total profit. When the MR and MC equals to each other it will
mean that PM = 0, and the total profit at this point reaches its maximum.
Further growth of production would exceed the MC over the MR and PM takes
negative values. In this case, when the marginal profit becomes negative, the
firm can increase its overall profit by reducing the level of output.
decision about investing capital and about output of production, the firm can
also focus on the average profit rate, which expresses the amount of profit per
unit of output (Pm) / Q However, it should be borne in mind that the maximum
average profit and the maximum total return does not match (http://revolution./economy/00006603_0.html).
are other ways of increasing income for an enterprise?
often small business owners devote all their time working with every aspect of
the company. Such deep involvement has its advantages, but if they do not
interrupt and do not focus on the factors affecting the profitability of the
company as a whole and in detail the result can be lower rates of profit.
challenge to increase profitability requires the owner of the company to
withdraw from daily activities and analyze the activities and financial
statements of the company with an independent point of view, or in other words,
as a third party. In this regard, accounting records are very important, as
well as financial statements for evaluation of company’s history of commercial
the company's financial statements did not reflect the latest data, the
financial records must be updated. This can be done either manually or using
appropriate accounting software. This problem is often takes place in small
businesses, because statements usually are prepared at the last moment and
solely for tax purposes. Small businesses may be limited to simple accounting
spreadsheets, while medium-sized businesses are encouraged to adapt more
should make a list of strengths and weaknesses of the company by examining
every aspect of its activities, including sales and procurement, cost
management, personnel and financial control. Using financial records, evaluation
under these various aspects by elements should be made. The list should be as
detailed and exhaustive as possible, since based on this list the program of
actions will be created on which, in turn, will be built the business
and current turnover, divided by product, by sales volume and sales prices are
among those elements. Analysis of costs is carried by the type and breakdown of
direct purchases, operating expenses and ongoing overhead expenses such as
costs for rent.
important element is the assets and liabilities of the company. One should make
a list of major long-term assets and their relevance and importance to the
company. Working capital is - the difference between current assets, such as:
cash, bank accounts, inventories and accounts receivable - and current
liabilities, such as: accounts payable, borrowings
analyzing the operational and financial aspects, and by listing the strengths
and weaknesses, one is able to begin learning how on the basis of past
financial indicators derived from accounting records can be formed future
management should examine turnover, defined as sales of existing products and
related products, as well as potential new products; examine the sales prices
and the relationship with key customers and how you can attract new customers.
Based on the analysis, create a plan to increase sales, preferably directed to
those products and product groups, which will give the highest gross profit
role is played by sales channels. While the company may already have multiple
sales channels in the past, perhaps this potential was not fully utilized. One
should explore the strengths and weaknesses of each existing and other
potential sales channels.
areas that require attention include: selling prices, maybe there is an
opportunity to raise some prices. Studying of existing customers can point out
where and how you can increase sales.
important element is costs management. Examine the database of suppliers and
the possibility to find cheaper and better suppliers. Most small and big
companies always have the opportunity to reduce the costs associated with the
is required to consider and financially assess the actions of management,
prepare financial projections of the budget business plan, supported by the
description of the measures to be taken to improve profitability, regularly
check progress and its influence on the rate of return. With the passage of
time and with the emergence of new opportunities may become necessary to adjust
or revise the current actions or program of actions (http://business.damotvet.ru/small-business/1012838.htm).
of income for enterprises are: net income from selling of products (providing
services), profit from financial and ordinary economic activities,
The rights and opportunities of allocation and using the income
are very important for any enterprise because income is the main source of
financial, production and social development, financial development of its
employees. The order for income allocation and utilization for commercial
enterprise are defined by the methodology of income that is accepted in
particular society at this stage of its development. Current order of income
allocation corresponds to current stage of market relations development. The
income should be allocated between owners, investors of the enterprise and
government (as taxes). Common to all businesses regardless of ownership and
types of activity is the distribution of profits in accordance with the statute
and the collective agreement for the following purposes: payments to the
budget, contributions to the non-budgetary funds, the formation of the
accumulation fund, establishment of a fund of consumption, charitable purposes,
other purposes (saving for the purchase of property, etc.).
There are several types of costs:
explicit costs, implicit costs, fixed, variable and semi-variable costs.
One of the ways to decrease the costs is reducing the costs
of production by the use of scientific and technological progress;
improving the organization of production on the basis of
productivity increase through reduction of working time wastes; state
regulation of economic processes. Another way is creation of the system of
effective control over costs, which is consisted of cost accounting, staff’s
support of cost accounting system, analysis of the causes of costs in the
company. There are also some tips to reduce costs like categorization of
expenses by clearly defined categories, focusing on the most significant costs,
planning and implementation of cost reduction. Besides ways and tips for
reducing the costs one can use special approaches to do it: 1. Know the
measure, 2. New or old partners, 3. Horizontal integration, 4. Vertical
integration, 5. To buy or produce, 6. Rent or own, 7. Forms of payment, 8.
Tighter control, 9. Optimization of technological processes.
To increase the income one can use the general rule of profit
maximization: The firm will increase output until the moment when additional
costs of producing an additional unit of output equals the marginal revenue
from its sale. This is called the rule MC = MR.
More general ways are focusing on the factors affecting the
profitability of the company; evaluation of financial statements; the financial
records must be updated; making a list of strengths and weaknesses of the
company by examining every aspect of its activities and a list of major
long-term assets and their relevance and importance to the company; company’s
management should examine turnover and sales channels.
List of used literature
(2002, November 12). Максимизация прибыли в условиях совершенной конкуренции. Retrieved
October 12, 2009, from http://revolution./economy/00006603_0.html
Bestreferat.ru. (2005, August 20). Доходы предприятия. Retrieved
October 10, 2009, from http://www.bestreferat.ru/referat-68599.html
Business Ideas. Typical Contract. (no date). Расходы предприятия.
Классификация расходов. Retrieved October 11, 2009, from http://www.tvoydohod.ru/fin_11.php
Damotvet.ru. (no date). Малый бизнес: улучшение показателей прибыли на основе изучения
и планирования бизнеса. Retrieved October 14, 2009, from http://business.damotvet.ru/small-business/1012838.htm
Vuzlib, the legal and economical library. (no date). Стратегия по снижению
расходов. Retrieved October 16, 2009, from
XServer.ru, the on line library. (no date). Распределение и
использование прибыли предприятия. Retrieved October 14, 2009, from
Zubolom.ru. (no date). Минимизация издержек. Основные пути снижения расходов. Retrieved October 15, 2009, from http://zubolom.ru/lectures/economy/28.shtml