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Unjustified and uncontrolled costs are one of the most pressing problems of most companies. A clear programme with a range of activities is needed to reduce costs. One critical step is to analyse the cost structure.

Let's illustrate the effect of reducing costs by example.

From 850,000 to 800,000 roubles, i.e. only 6.3 per cent, can generate the same additional profit (50,000 roubles) as the increase in sales from 1 million to 1, 333 million roubles (33.3 per cent) (see Figure 1). In doing so, increased sales often require additional financing for production and may create difficulties in the delivery of finished products due to limited demand, while lower costs are not related to the problems listed.

It is only necessary to determine immediately what the cost(s), costs, payments differ.

Costs are the value of all resources used in the enterprise ' s production and management process. However, not all costs are reflected in the management report on gains and losses during the period.

Expenditures are only those that participate in the generation of the profits of a given period, and the remainder of the costs are capitalized in company assets in the form of finished products, unfinished production, semi-process balances for own consumption, unfinished capital construction facilities, intangible assets, etc. (a simplified scheme based on IFRS standards is presented in Figure 2). In other words, expenditure is a decrease in assets or an increase in liabilities resulting in a reduction in capital that is not related to the distribution of profits between shareholders.

Payments are the cash flows paid for the resources provided. Costs and payments vary between stock changes and accounts payable for the period under review.