Assign each cost—direct, indirect, fixed, and variable—to one of the categories you saw in the previous chapter.
- Once you have your data in hand,…it's time to categorize each cost as direct or indirect…and as fixed or variable.…This doesn't help you figure out how…to allocate the cost by product,…but it's a great way to kickstart the allocation process.…And don't sweat it if you're…hesitating between two categories.…Chances are, it won't affect the end result anyway.…If a cost is direct, it will be easy…to connect it to a product.…Costs categorized as indirect, will require more time…to decide how to tie them back to products.…
Once you know if a cost is fixed or variable,…you'll be able to calculate the per-unit portion.…This will make your life much easier…when planning for costs in the future.…Then, list all the costs you got…from the accounting systems in a spreadsheet.…In front of each entry, mark it…direct or indirect and fixed or variable.…For example, let's think about office rent.…In your spreadsheet, you could have a row labeled as rent,…with the total rent for last year.…
Then ask yourself, is it directly tied to a product?…
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- Identify the purpose of cost-accounting.
- Define product profitability.
- Determine your baseline.
- Gather revenue and cost information for your analysis.
- Connect targets with profitability.
- Build your target baseline.
- Analyze pricing.
- Calculate probable product profitability.