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Cheat Sheet for Calculating Fixed and Other Costs

Also with labor now at a premium sometimes larger

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Unformatted text preview: t may be worth it to them to pay a little more every year to a have a dependable piece of equipment as opposed to something they are having to continually work on. Also, with labor now at a premium, sometimes larger equipment offers more reliability than trying to find more labor. The equation for Total Fixed cost is given below. The actual formulas are shown in Table 1. Explanations for some of the variables below Figure 1 Figure 1. Equation for total fixed cost Where: DEPRECIATION is the actual loss in value or use not the amount allowed to be deducted by IRS. INTEREST ON AVERAGE INVESTMENT is the amount of interest to charge on average investment value of the asset. This allows producers the ability to determine the cost of capital used either in this enterprise or what they could be earning in an enterprise of similar risk. Most people use 4 ­10 percent depending on the riskiness of the investment. AVERAGE INVESTMENT is the average amount of money invested in the asset on which to charge interest. INSURANCE AND TAXES are usually calculated as a percentage of investment (somewhere between 1 ­2.5 percent) to account...
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