Why do manufacturers still produce when they lose money in the short term? Under what circumstances

Production can be made when the loss is less than the fixed cost, but no longer produces when the loss is greater than the fixed cost.

Fixed cost refers to the cost that the total cost can remain unchanged in a certain period of time and within a certain business volume without being affected by the increase or decrease of business volume, such as machine cost, basic salary of sales personnel, salary of management personnel, etc. As a simple example, the profit of a manufacturer from the production of a product is - 100,000 yuan, including 300,000 yuan of raw material costs, 200,000 yuan of depreciation of fixed assets, and 400,000 yuan of sales revenue. If the enterprise does not produce, the depreciation of the machinery and the salaries of the managers will inevitably occur.

If you don't produce, you lose money - 200,000, but production - 100,000. Therefore, reproduction is necessary even if there is a loss. In the case of short-term losses, the manufacturer's losses are small and can also cover variable costs such as raw materials and labor.

As losses mount, manufacturers should stop production if they can't sustain their daily expenses.

Further information: Total profit = revenue - cost - taxes and surcharges - period expenses. Enterprises need to continue to operate.

Even if it is a temporary loss, they should stick to production and seek opportunities for development in production. The profit or loss of a business is calculated based on the current income minus the current costs, taxes and expenses. Losses occur when current costs, taxes, and expenses are greater than current revenues.

A large part of the cost of a business is fixed costs, i.e. costs that will occur whether you produce it or not. Insisting on production generally adds value, which will slow down the losses of enterprises, while abandoning production will increase losses. Finally, there is a market factor.

If the enterprise easily stops production, it will lose the original customer base, which is a fatal blow to the future development of the enterprise.

Production refers to the activities and processes in which human beings engage in the creation of social wealth, including the creation of material wealth, spiritual wealth and human fertility, also known as social production. Production in the narrow sense refers only to the activities and processes that create material wealth. Also refers to the reproduction of animals.

Hehe, it involves issues such as fixed costs and variable costs, which belong to the content of cost accounting! Production can be made when the loss is less than the fixed cost, but no longer produces when the loss is greater than the fixed cost. Note:

Fixed cost refers to the cost that can remain unchanged in a certain period of time and within a certain range of business volume, which is not affected by the increase or decrease of business volume. For example, the cost of the machine. The basic salary of a salesperson.

salaries of managers, etc. For a simple example, the profit of a manufacturer producing a certain product is 100,000 yuan, of which the cost of raw materials is 300,000 yuan, the depreciation of fixed assets is 200,000 yuan, and the sales revenue is 400,000 yuan. If the enterprise does not produce, the depreciation of machinery and the wages of management personnel must occur, if it does not produce a loss of 200,000, but it produces 100,000.

So even if you lose money, you still have to reproduce, understand? If you have any questions, you can give me information!

The meaning of the above three paragraphs is very clear, when there is a short-term loss, the manufacturer's loss is not large, and it can also pay for variable costs such as raw materials and labor.

As losses increase, manufacturers should stop production if they are unable to maintain their daily expenses.

Total Profit = Revenue - Costs - Taxes & Surcharges - Period Expenses.

To put it simply, it is because of a small loss in production, not a big loss. The reason for this is because the reason for the loss is because the revenue is less than the average cost. But the revenue is not necessarily less than the marginal cost.

As long as the ** of a piece of income is greater than its marginal cost, the enterprise will continue to produce, but on the whole it will be loss-making.

When the revenue of a product is less than its marginal cost, the business will not produce.

Enterprises should continue to operate, even if it is a temporary loss, they must insist on production, and demand opportunities for development in production; The profit and loss of an enterprise is calculated according to the current income minus the current costs, taxes and expenses, and when the current costs, taxes and expenses are greater than the current income, there will be losses. A large part of the cost of the enterprise is fixed costs, that is, the costs that you will incur regardless of whether you produce or not. Insisting on production, in general, has a value-added amount, which will slow down the loss of the enterprise, and giving up production will expand the loss; Finally, there is a market factor, if the company easily stops production, it will lose the original customer base, which is a fatal blow to the future development of the enterprise.

Losses are symmetrical to profits. It refers to the net loss of the enterprise in a certain period of time, and is an important indicator that comprehensively reflects the production and operation results of the enterprise in a certain period. There are two types of losses: policy losses and operating losses.

Policy loss: also known as planned loss, refers to the planned loss incurred when the sales price of certain commodities is lower than the purchase price, or the purchase and sales are flat, or the sales price is slightly higher than the purchase price, but it is not enough to cover the circulation costs. Such losses shall be reviewed and approved by the competent department of the enterprise in conjunction with the financial department, and shall be made up by the state or the superior unit.

Operating loss: It is the loss incurred by the enterprise due to poor management. Enterprises should take practical and effective measures to turn losses into profits as soon as possible.

Do you think manufacturers are really losing money? Who would do it knowing that they would lose money? In fact, the loss of money is for others to see, and the losses of state-owned enterprises cannot be deserved.

It depends! Loss-making products are products whose sales revenue does not compensate for production costs. Loss-making products can be divided into two types according to their loss-making nature:

One is a loss-making product, that is, the sales revenue is lower than the variable cost, and the contribution margin is also negative. The other is a fictitious loss product, that is, the sales revenue is higher than the variable cost, which can provide a contribution margin. Should loss-making products be discontinued?

If it is a policy-based loss-making product, of course, it should not be discontinued; If it is a for-profit product, according to the traditional financial accounting view: since it is a loss-making product (whether it is a loss-making product or a loss-making product), it should not hesitate to stop production. However, according to the view of modern management accounting, the actual loss product should not continue to be produced, because the sales revenue of such a product is lower than the variable cost, the contribution margin is negative, and the more production, the more the loss; However, the reason why loss-making products lose money is that the contribution margin provided is not enough to cover all the fixed costs, and if production is stopped, the losses will not only not be reduced, but will increase because the fixed costs remain unchanged, so the decision should be made after empirical analysis.

To put it simply, for loss-making products, an appropriate amount of production and sales can also make up for part of the fixed costs, and the production will be stopped directly, and the loss will be even more! As long as the loss-making product meets any of the following conditions, it should not be discontinued: The unit price of the loss-making product is greater than its unit variable cost; The unit contribution margin of the loss-making product is greater than zero; The revenue of the loss-making product is greater than its variable cost; The contribution margin of the loss-making product is greater than zero; The margin of contribution of the loss-making product is greater than zero; The variable cost ratio of the loss-making product is less than zero.

As for how much load should be used for production, it can be calculated! It is recommended to read the book of modern enterprise management, not only to find a way to calculate a reasonable production volume, but also to get a deeper understanding!

It is generally assumed that, in the short run, the loss of a perfectly competitive company to downtime is equal to the total fixed costs. This is because, in the short term, perfectly competitive firms (as well as other firms) have so-called "fixed elements" and the resulting "fixed costs". In the presence of fixed elements and fixed costs, production stoppage leads to the loss of fixed costs.

The size of the loss of fixed costs due to downtime depends on a number of factors. For example, can fixed elements be repurposed? Can it be "monetized" in the market?

If so, how easy is it to monetize? Wait a minute. For the sake of simplicity, it is generally assumed that all fixed elements cannot be used for other purposes and cannot be liquidated in the market.

In this case, the loss of downtime equals the entire fixed cost.

Extended information: 1. Perfect competition.

Perfect competition, also known as pure competition, is a market structure that is not subject to any hindrance and interference, and refers to those markets that do not exist enough to affect the best enterprises or consumers. It is the ideal state of market competition in economics, and it is also one of several typical market forms. It can be shown that the result of perfect competition is consistent with Pareto optimality.

Perfect competition is a market structure in which there are many sellers of homogeneous goods, no single seller or buyer can control**, entry is easy, and resources can be transferred from one user to another at any time.

2. The connection and difference between perfect competition and monopolistic competition.

the connection and difference between perfect competition and monopolistic competition; Completely competitive market without any obstacles and interference. Monopolistic competition refers to the structure of a market in which manufacturers produce and sell the same kinds of products in the market. The manufacturer who produces a product very close to it is called the production group.

The most fundamental difference between perfect competition and monopolistic competition is that market participants have the ability to influence, the same quality, the manufacturer and receive an average profit.

3. What are the characteristics of a perfectly competitive market.

There are a large number of economic agents in the market, and the scale of each subject is very small, and none of them can affect the supply and demand in the market through buying and selling, nor can they affect the market, and everyone is a passive recipient of the market.

All kinds of resources can flow completely freely without any restrictions, including the unhindered flow of labor between different regions, different sectors, different industries, and different enterprises. None of the owners of the factors of production can monopolize the inputs of the factors.

New capital can enter without any obstacles, and old capital can exit without any obstacles.

The market information is complete and symmetrical, and both manufacturers and households can obtain complete market information, and there is no mutual deception between the two sides.