Cost accounting

Most bad pricing decisions, bad product-line decisions, and bad margin arguments come from the same place: nobody agrees what the thing costs.

Classify cost behavior before you allocate anything

• Fixed costs do not move with volume — within a relevant range. Outside that range they step, and the step is usually large: another shift, another facility, another tier of licensing.
• Variable costs move with each unit: materials, payment processing, per-unit fulfillment, usage-based infrastructure.
• Mixed costs have both, and most real accounts are mixed. Split them with high-low or a regression on historical volume rather than guessing the proportion.

The split is not academic. Variable cost sets the floor for one more incremental order. Fully loaded cost sets the floor for the business as a whole. Confusing the two is how companies price themselves into volume that loses money.

Know which costing basis you are looking at