Variable cost allocation is a buzzword for any investment manager or planner out there. To simplify, it means the allocation of costs on projects based on assumptions about future prices of gas and electricity. It’s not a pie-in-the-sky concept, where the sky is the limit. For most projects, the “what is” is what you and the investors expect to pay for capital expenditures plus a profit. The “who is” is how you get paid.
So, let’s start with a simple example. If you are planning a major expansion in your manufacturing operation, you can allocate one-third of the project’s cost to be invested in machinery that will provide you with new manufacturing processes. You can also allocate another third to existing processes for manufacturing, shipping, and receiving. The other two-thirds of the project would go into operations such as selling products, leasing, and investing in facilities.
In this example, we’ve pretty much cut everything you’d normally expect to keep cost down. However, you may still find yourself asking, what is the variable cost. After all, what if you determine the right factors for the project then get the fixed prices back and just assign half of your variable costs to what we determined was variable? Doesn’t seem very practical.
Indeed, it would be a lot more practical to actually write down what is variable and what is fixed for each project. After all, when it comes to variable costs, what is variable is what changes over time. But there are ways to still make sure that you don’t end up assigning too much variable to variable costs. Here are some of them.
First, think about what is fixed cost in the first place. That is, what is the total amount of money that the company can invest for the project? This will include the startup costs for equipment and tools and materials. It also includes the salaries and wages of all the employees and workers that will be involved in completing the project. The fixed cost portion of your invoice is the pricelist that you need to work with.
What you might not know is that often companies will allocate most of their fixed costs to what is termed covering the “other expenses”. It could be administrative fees, utility bills and even repair and maintenance that will have to be done on the construction site. All these things are considered part of the “other expenses” that are allocated to the project. Therefore, only what is total variable cost is the total amount of money you’ll be paying. You’ll usually see this allocated towards the bottom of the invoice. Don’t forget to keep track of your invoices to see which expenses are what.
What are the total variable cost and why should you care? Usually you only care about it if you’re an investor or businessperson that wants to see if a particular project will be successful. To do that you have to make sure that you are able to determine the profitability of a project before spending any of your money. That’s why you should know about the variable cost of investment, because it will allow you to make good decisions regarding what is the total variable cost.
There are many websites online that can help you get your hands on what is total variable cost. However, you should make sure that you are dealing with a reputable website and that they have been in the business for quite some time. Also, check their terms of service because there are some sites that don’t have them. You want to deal with someone who is legit and has a proven record of providing excellent information regarding investments and financial businesses.