How to Calculate Fixed Costs and Variable Costs

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Every company that produces products to sell, will certainly go through the stages of the production process. This is done to meet the needs of products in the market in accordance with the company’s target. This production process certainly requires costs borne by the company itself.

This financing is done to support the production process whose costs can be fixed or variable whose amount will change according to the volume or production capacity that a company wants to produce. Therefore, planning is needed in calculating costs whose estimates must be in accordance with production needs.

Then how to calculate fixed costs and variable costs in a company so that the finance department can determine the amount of costs that must be budgeted through financial management? For more details, let’s discuss the problem in the following way.

How to calculate fixed costs

Fixed costs are costs related to capacity or volume. Fixed costs have two characteristics, namely the costs do not change or are not influenced by a certain period or activity, and the cost per unit is inversely proportional to changes in volume.

If the volume is low, the fixed cost is high, whereas on a high volume the fixed cost per unit is low. A simple example like this, the carrying capacity of a passenger car per day is 50 passengers, and 1 month 1500 people.

If you want to increase the number of passengers more than 1,500 people per month, you have to increase the number of cars. From the number of passengers, we must calculate depreciation costs to obtain the estimated cost per unit, i.e.

(Car purchase price – Residual value): Estimated Usage
(Rp. 200,000,000 – Rp. 20,000,000): 10 years = Rp. 18,000,000

Fixed costs (depreciation) per year are Rp.18,000,000 or Rp1,500,000 per month. Through the depreciation fee, the cost per unit per passenger can be calculated as follows:

Unit costs per month = fixed costs per month: number of passengers per month

fixed costs per month

number of passengers per month

fixed cost per unit

Rp1,500,000

1,500

Rp1,000

Rp1,500,000

1,000

Rp1,500

Rp1,500,000

500

Rp.3,000

Information :

From the table above we learn that the fixed cost per unit is inversely proportional to volume. At a passenger capacity of 1,500 people, the fixed cost per unit is Rp1,000. Then on a passenger capacity of 1,000 people, the fixed cost per unit becomes Rp1,500 or an increase of Rp500. Likewise, when the passenger capacity is 500 people, the fixed cost per unit rises to Rp3,000.

How to Calculate Variable Costs

Variable costs have two characteristics: total variable costs will change proportionally to changes in volume or capacity, the greater the capacity used, the greater the total variable costs and vice versa. The second characteristic is the fixed or constant cost per unit.

For example, the cost of using gasoline and oil on a vehicle is calculated and depends on the distance traveled, but the price per liter of gasoline and oil is fixed or constant, not affected by mileage. Examples of details such as the following:

Pertalite price of IDR 8,000 per liter. One liter of Pertalite can cover a distance of 20 km. How is the calculation of variable costs per unit?
From the example of the variable cost accounting problem above, it means that the cost of a pertalite per 1 km is: Rp.8,000 / 20 = Rp400, –

Let’s look at the following table:

cost per liter of pertalite

distance traveled

total pertalite costs

Rp.400

500

Rp.200,000

Rp.400

1000

Rp.400,000

Rp.400

1500

Rp.600,000

Information:

The total variable cost in this case the total cost of using pertalite, the size depends on the volume of activity, in this case the distance traveled. The higher the volume of activity, the total variable costs also increase, and vice versa. But the variable costs per unit are fixed. In the example above, regardless of the distance traveled the price of Rp. 400.

In the production process, the existence of variable costs and fixed costs are only part of the financing program that must be borne by the company. There are still a number of financing, such as production and marketing financing, which must be carefully calculated.

This financing status is very important in a matter of operational continuity of a company. Therefore, it is very important to understand the costs used in meeting production needs. To simplify the calculation of all these costs, it is advisable for each company to use the help of safe and trusted accounting software.

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