How to Determine the Fixed Costs of a Manufacturing Beverage Company
Fixed costs are the necessary expenses involved in running your beverage manufacturing company. All the costs -- outside of the direct materials and direct labor used on the production line -- are fixed costs. Unlike variable costs, most of your fixed costs remain constant over the year. Other expenses, such as utilities, fluctuate in such a narrow range over consecutive months that they are considered a fixed cost. At the end of a production run, you spread the fixed costs evenly over the number of beverage units produced to get the total manufacturing cost per unit.
Fixed costs are the manufacturing and nonmanufacturing indirect costs required to manufacture your beverages. Fixed costs include the rent or mortgage payments you pay for your factory and office building, the property taxes and utilities expenses. Insurance premiums and the depreciation taken on the factory and office buildings and production equipment are fixed costs. Salaries paid to your non-hourly employees, including factory floor supervisors and corporate executives, are considered fixed costs.
While variable costs are entered into your accounting system as they occur, fixed costs can be entered monthly or annually. Depreciation on your buildings, equipment and machinery can be written off at the end of your accounting year. The expenses you pay on a monthly basis, such as your factory mortgage, should be entered into your accounting records at the close of the monthly accounting cycle. However, prepaid fixed costs such as insurance premiums are handled differently. Although the premium is paid annually, you must expense the premium over 12 months as the coverage is used up.
At the close of the monthly accounting cycle, all the fixed manufacturing costs are added together. On the same day, you determine how many beverage units you manufactured over the same period. An equal amount of the total fixed manufacturing costs are then allocated to each of the beverage units. To calculate the allocation amount, divide the total fixed costs by the number of units produced. For example, your total fixed costs are $50,000 and you produced 100,000 cans of your beverage. Your fixed cost per unit is 100,000 divided by $50,000, or 50 cents.
The selling price of each beverage unit must cover your fixed and variable manufacturing expenses. To calculate the break-even point, add the total of your variable and fixed manufacturing costs together. Now total the number of beverage units produced. Divide the number of beverage units by the total variable and fixed costs to get your break-even point. Say your fixed and variable costs are $80,000 and you produced 200,000 beverage units. The break-even point is 200,000 divided by $80,000, or 40 cents. Each beverage unit must sell for at least 40 cents for you to recoup your costs.