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The size of the enterprise and the factors that determine it

Of great importance for the viability and competitiveness of the enterprise is the determination of its size.

It is necessary to distinguish between the concepts of "size of production" and "size of the enterprise."

The size of the volume of production is always expressed by the quantity of products, the more products in physical terms the enterprise produces, the larger the size of production.

The size of the enterprise is the amount of living and materialized labor concentrated in the enterprise, which is necessary for its industrial use in this enterprise with progressive technology, organization of production and labor. The more material and labor resources are concentrated in the enterprise, the larger it is.

The level of scientific, technological and resource capacity of a particular

industry determines the minimum size of a sectoral enterprise, below which it is impractical to create enterprises. The optimal size is the size of the industrial enterprise at which the best value is achieved according to the criterial indicator. The criterion may be a minimum of production costs, maximum profit, a certain level of profitability, maximum social and environmental effect.

For each production, there is only one minimum allowable production size. The optimal size of enterprises of this type of production may be several, depending on the specific market situation, specialization and inter-production relations, transportation conditions, etc.

When determining the size of the enterprise, it is necessary to be guided by the criteria of economy and minimize costs (costs).

Costs - these are the payments that the company is obliged to make, or the income that the company is obliged to provide the resource provider in order to divert these

resources from use in alternative industries. The opportunity costs faced by firms include payments to workers, investors, and owners of natural resources; all these payments are made in order to attract production factors, thereby distracting them from alternative applications, etc.

Explicit costs are opportunity costs, taking the form of direct (cash) payments to suppliers of factors of production and intermediate products. Explicit costs include salaries paid to workers, managers' salaries, commissions to trading companies, payments to banks and other financial service providers, legal advice fees, travel expenses, etc.

There are also implicit costs. These include the opportunity cost of using resources owned by the owners of the firm (or owned by the firm as a legal entity). These costs are not provided for by contracts that are required for explicit payments, and therefore remain undeliverable (in cash). Typically, firms do not reflect implicit costs in their financial statements, but this does not make them less real.

Another method for classifying costs is based on taking into account the time horizons during which certain production decisions are made.

Variable costs - costs depending on the volume of output.

They which can be quickly and without much difficulty changed in the framework of an enterprise of a given size as the volume of output changes.
Raw materials, energy, hourly wages are examples of variable costs of most firms.

Fixed costs - do not depend on the volume of products or services provided. Generally long term. Fixed costs got their name due to their nature of immutability and independence from changes in the volume of production. However, they belong to the category of current costs, because their burden falls on the company every day if it continues to rent or own the production capacities necessary for it to continue production activities. In the case when these current costs take the form of periodic payments, they relate to explicit cash fixed costs. If they reflect the alternative costs associated with the ownership of certain production capacities acquired by the company, they represent implicit costs.

The division of costs into constants and variables is the basis of the method,

which is widespread in the economy. It was first proposed in

1930 by engineer Walter Rautenstrauch as a planning method, known as the critical production schedule, or break-even chart.

The break-even chart in its various modifications is widely used in the modern economy. The undoubted advantage of this method is that with its help you can quickly get a fairly accurate forecast of the main indicators of the enterprise when the conditions on the market change.

When constructing a breakeven schedule, it is assumed that there are no changes in prices for raw materials and products for the period for which planning is carried out; fixed costs are considered constant in a limited range of sales; variable costs per unit of output do not change with changes in sales; sales are fairly even.

Fig. 5.

Break-even chart



When plotting a graph along the horizontal axis, the volume of production in units of products or in percent of the use of production capacity is postponed, and on the vertical axis, production costs and income. Costs are deferred with the division into constants (POI) and variables (PI). In addition to lines of fixed and variable costs, the graph displays gross costs (VI) and revenue from sales of products (VR).

On the basis of this graph (Figure 5), the minimum sales volume for each type of product and the minimum allowable volumes for breakeven are determined.
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