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Breakeven Analysis for an Equipment Manufacturer

Sandy Crow's Profile

If you have developed a breakeven analysis for an equipment manufacturer, can you share your approach? Variable vs Semi-Variable vs Fixed Costs.

Answers

Sami Abulehya
Title: Chief Accountant
Company: Laf
(Chief Accountant, Laf) |

Dear Sandy,
the following matters are important in how to decide the cost behavior for a certain cost object:
1)The cost driver for the cost object
2) The relevant range of the cost driver
3)Time horizon for fixed costs

To determine the variable cost from the fixed cost in the mixed cost use the following linear equation:
Y = a+bx
Y: total mixed cost
a: fixed cost
b: variable cost per unit
x: unit output

Below is a suggested classification of costs and expenses behavior

Manufacturing Overhead Cost Behavior
Indirect Materials Cost Variable
Indirect labour Cost / Salaries Fixed
Repairs and maintenance Cost Mixed
Rental and Operating Lease Costs Fixed
Fuel Costs Variable
Water and Electricity Costs Mixed
Postage, Telephone, and Mobile Costs Mixed
Spoilage, and Reworks Variable
Health and Safety Costs Fixed
Governmental Costs Fixed
Insurance (Unrelated to Employees) Fixed
Travel and Entertainment Costs Fixed
Printing and Stationery Costs Variable
Inspection, and Testing Costs Variable
Security Cost Fixed
Legal and Professional Fees Fixed
Technical Services Fixed
Consumable Materials Variable
Depreciation Fixed
Training and Development Fixed
Others Mixed

Selling and Distribution Cost Cost Behavior
Employee Payroll Fixed
Booths and Exhibitions Fixed
Advertising and Publications Fixed
Communication, Postage, Tele, and Mob Mixed
Training and Development Fixed
Travel and Entertainmen Fixed
Insurance (Unrelated to Employees) Fixed
Fuel Costs Variable
Water, and Electricity Mixed
Rental and Operating leases Fixed
Stationery and Supplies Fixed
IT Related Exp Fixed
Warehousing Services Fixed
samples and Promotions Variable
Depreciation Fixed
Repairs and Maintenance Mixed
Transportations Variable
Commissions Variable
Others Mixed

Administrative Costs Cost Behavior
Employee Payroll Fixed
Management Compensation Fees Fixed
Legal and Professional Fees Fixed
Communication, Postage, Tele, and Mob Mixed
Training and Development Fixed
Travel and Entertainment Fixed
Insurance (Unrelated to Employees) Fixed
Fuel Costs Fixed
Water, and Electricity Mixed
Rental and Operating leases Fixed
Stationery and Supplies Fixed
IT Related Exp Fixed
Repairs and Maintenance Mixed
Litigation Exp Fixed
Depreciation Fixed
Governmental Fees Fixed
Security Cost Fixed
Subscriptions Fixed
Transportation Fixed
Cleaning Costs Fixed
Hospitality and Cafeteria Costs Fixed
Fees and Commissions Fixed
Bad Debt Exp Variable
Conferences and Forums Exp Fixed
Printing Exp Fixed
Others Mixed

Any corrections or suggestion to the above will be highly appreciated.

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