USA Allocating fixed costs

[ytmtk]

I’m an intern at a small publishing company, and I’ve been tasked with finding out the cost of each product to ultimately create a costing model and to calculate profitability of each product.

We have a large number of products, and each product takes some amount of money to initially create (graphics for the cover, paying editorial staff, etc.). This is a one-time cost. Then there are costs to actually print/distribute the books. For example, book 1 costs $20,000 to initially create and costs $10 per unit to manufacture.

My question is: how do I allocate (or account for) this initial one-time fixed cost in the final per unit cost of the product? Everything I read online assumes that you know the number of units sold (or will sell) when figuring out the costs per product. However, since we don’t know how much each product/book will sell, I don’t know to figure these initial costs into the costing model. Thanks!

 

[kirby]

Take a look at this
http://aaupwiki.princeton.edu/index.php/Book_Publishing_Accounting:_Some_Basic_Concepts

and if that doesn't help. There MUST be someone at your company who figured they could at least sell x number of books. See if you can find that person and that estimate.

 

[Counterofbeans]

I'm not in the publishing business, so I need a little help filling in the blanks where I don't understand....

Why does the units sold, either projected or actual, play a role in determining the cost per unit?

It sounds like something where you will need a projected sales number, as actual production will be based on projected sales. Actual production, ultimately, is what that one-time cost will need to be spread over and that typically works with an estimate which is refined/trued up to actual on a, say, month-to-month basis

 

[Victor Shah]

I agree with Counterofbeans! You only need Number of units sold to determine profitability. To determine cost per unit, you need units manufactured, (units published in this case)