Fundamentally the process of defining the variable and fixed costs allows management to create a synopsis of the final unit cost. However it is the combination factors of the unit cost multiplied by the total output to be created that will finalize the price point. The flexibility here allows the pricing structure to adjust according to the market actual resistance or expectation.
When the product is seating at the storage until is sold, the same creates addtional cost that must be absorbed by the time it takes to sell. Management decisions and Accountants realistic approach to correct the price structure will allow the company to operate in the most profitable manner possible and guaranteeing its sustainability.
Renato Souza - Brazilian Economist 2010 wrensouza@Yahoo.com
To add to Renato's thorough response, from a practical point of you, the US government requires you to track direct and indirect costs separately if you have cost-reimbursable contracts with them. The Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS) have very strict standards regarding the tracking of direct costs and allocation of indirect costs among government contracts. Designing your system to do this from the beginning will solve you a lot of headache later if you decide to do business with the federal government.
Mark Goldstein - Government Contracting Consultant
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