To find fixed costs, you can use the following methods:
1. Using the Cost Formula
Fixed costs can be calculated by subtracting total variable costs from total costs:
Fixed Costs=Total Costs−(Variable Cost Per Unit×Number of Units Produced)\text{Fixed Costs}=\text{Total Costs}-(\text{Variable Cost Per Unit}\times \text{Number of Units Produced})Fixed Costs=Total Costs−(Variable Cost Per Unit×Number of Units Produced)
This means you first determine your total costs, then calculate your total variable costs (variable cost per unit multiplied by the number of units produced), and subtract the variable costs from total costs to get fixed costs
2. Listing and Adding Fixed Expenses
Alternatively, you can:
- List all your business expenses.
- Separate fixed costs (those that do not change with production volume, such as rent, salaries, insurance) from variable costs.
- Add all fixed costs together to get the total fixed cost.
For example, fixed costs may include rent, employee wages, equipment costs, and website expenses
3. Apportioning Fixed Costs for Projects
If you want to find fixed costs related to a specific project within a company, you can apportion the total fixed costs based on the project's share of sales or production hours:
Project Fixed Cost=(Project Sales or HoursTotal Company Sales or Hours)×Total Fixed Costs\text{Project Fixed Cost}=\left(\frac{\text{Project Sales or Hours}}{\text{Total Company Sales or Hours}}\right)\times \text{Total Fixed Costs}Project Fixed Cost=(Total Company Sales or HoursProject Sales or Hours)×Total Fixed Costs
This method is useful when fixed costs cannot be directly assigned to a project
Additional Notes
- Fixed costs remain constant regardless of production levels.
- Average fixed cost per unit can be found by dividing total fixed costs by the number of units produced:
Average Fixed Cost per Unit=Total Fixed CostTotal Units Produced\text{Average Fixed Cost per Unit}=\frac{\text{Total Fixed Cost}}{\text{Total Units Produced}}Average Fixed Cost per Unit=Total Units ProducedTotal Fixed Cost
This helps in pricing and profitability analysis
. In summary, to find fixed costs, either subtract total variable costs from total costs or sum all fixed expenses directly. For project-specific fixed costs, apportion based on relative activity measures like sales or production hours
