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Allocating fixed costs when unsure about how much product will be sold

I’m an intern at a small publishing company, and I’ve been tasked with finding out the cost of each product to ultimately create a costing model and to calculate profitability of each product.
We have a large number of products, and each product takes some amount of money to initially create (graphics for the cover, paying editorial staff, etc.). This is a one-time cost. Then there are costs to actually print/distribute the books. For example, book 1 costs $20,000 to initially create and costs $10 per unit to manufacture.
My question is: how do I allocate (or account for) this initial one-time fixed cost in the final per unit cost of the product? Everything I read online assumes that you know the number of units sold (or will sell) when figuring out the costs per product. However, since we don’t know how much each product/book will sell, I don’t know to figure these initial costs into the costing model. Thanks!

Answers

Ron Madsen
Title: Sr. Mgr FP&A
Company: RevenueWell Systems
LinkedIn Profile
(Sr. Mgr FP&A, RevenueWell Systems) |

In nearly every case you won't actually know the final number of units sold. You'll have to determine a "planned" volume to arrive at the allocation for the model purposes. Fixed costs are typically allocated this way and then trued up quarterly/yearly with actual volumes.

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