Fixed costing is a method used to calculate the cost of a product or service by allocating the cost to various parts of the production or provision of services in order to more accurately understand the cost components and control costs.
1.Determine the cost object: The first thing you need to do is to specify what you're costing for, which can be a product, a project, a service, or any specific activity for which you need to determine costs.
2.Identify cost elements: For each cost object, identify all relevant cost elements, such as direct material costs, direct labor costs, overheads, and so on.
3.Establish cost quotas: Establish a cost quota for each cost element and each cost object, that is, determine the amount of use and associated costs for each cost element in the production or service provision process.
4.Calculate the cost: Calculates the total cost of each cost object based on the established cost quota and actual usage. This typically involves allocating direct materials, direct labor, and overhead to cost objects separately and adding them up to the total cost.
1.Calculate the fixed cost of finished products = the cost of the product at the beginning of the month + the cost incurred in the current month - the fixed cost of the product at the end of the month.
2.Actual cost of finished product = fixed cost of finished product Various differences.
Suppose a manufacturing company wants to use the fixed cost method to calculate the cost of a product. First, determine that the cost object is a certain product. Then, determine the cost elements of the product, including direct material costs, direct labor costs, and indirect manufacturing expenses.
Next, establish cost quotas, such as the amount of direct material required for each product, the amount of direct labor hours and compensation required for each product, and the basis for allocating indirect manufacturing expenses. Finally, the total cost of each product is calculated based on actual usage, including direct material costs, direct labor costs, and indirect manufacturing expenses.
Through the calculation steps of the fixed cost method, enterprises can more accurately understand the cost composition of products or services, so as to carry out cost control and decision analysis.