If your business is growing, your costs are probably growing as well. The number of employees increases, expenses for materials and services increase, and administrative costs rise. All of these factors can lead to an increase in progressive variable costs.
What are progressive variable costs? Definition of the term
Progressive variable costs are a type of cost that increases as production increases. They are often used in industry and business because they allow for a better understanding of production costs. Progressive variable costs are important for businesses because they help in planning production and assessing profitability.
What is included in progressive variable costs?
Many companies include in progressive variable costs the costs of raw materials, energy, materials and services. These costs can vary depending on the type of product or service, as well as the size and scale of production. In the case of electricity generation, for example, raw material costs account for about 60-70% of progressive variable costs.
Progressive variables also include the cost of wages and salaries of production workers, which can vary by industry and company. Salaries account for about 30% of total progressive variable costs. However, it is worth remembering that salary costs can also be included in fixed costs if they are salaries of managers or employees with fixed working hours.
In addition to the cost of raw materials and wages, progressive variable costs can also include the cost of energy, oil, gas and other fuels, as well as the cost of maintenance and upkeep of production machinery and equipment. All these costs can vary depending on the type of production, as well as the size and scale of production.
Progressive variable costs – examples
Progressive variable costs are costs that increase as the volume of production increases. These can include material costs, service costs, energy costs or personnel costs. In the case of personnel costs, they increase as the number of employees increases or as wages increase.
In the case of material costs, they increase with an increase in the number of orders or with an increase in material prices. In the case of service costs, they increase with the increase in the number of orders or with the increase in service prices. In the case of energy costs, they increase as energy consumption increases.
The above examples show that progressive variable costs can increase as production volume increases or as prices increase. An increase in production volume is often associated with an increase in the number of orders. Therefore, to reduce progressive variable costs, it makes sense to focus on increasing production efficiency and reducing the number of orders.
