Your fixed price accountants are there for your business whenever they are needed, particularly when it comes to saving money for the company.
These individuals are responsible for looking at all of the expenses which are connected to the businesses’ supply chain so that budget preparation and profitability analyses can be conducted.
The fixed price accountants study every cost that is related to administration, production, shipping, materials, labour and more. The data which they gather is then put together and communicated to the executives so that they can decide on what to do as far as financial effectivity is concerned.
Wait. What is fixed price anyway?
Fixed prices are costs which do not differ in the short term, regardless of any fluctuations in sales or production levels or any other means of gauging activity. Fixed prices are part of the fundamental operating expense of a firm that cannot be escaped, such as the rent the company has to pay to stay in a particular building per month. This model is being applied to financial analysis to look for the breakeven point of a corporation, as well as defining product pricing.
Going back to the rent example stated above, this cost will not change unless there is a re-negotiation on the price or if the lease expires, regardless of how intense the business activity in that building is. Other fixed prices include property taxes, depreciation and insurance. These expenses tend to show up on a regular basis, and the amount that is charged to the costs would fluctuate from time to time. For more info, click here!
I understand now, but what does that mean for me?
When your business has a big fixed price component, it has to produce enough sales volume to have adequate contribution margin to equalise the expense. Your fixed price accountants may think of this like an oil refinery that has huge fixed prices as far as its refining capabilities are concerned. If the price of one barrel of oil will become cheaper, the facility will lose money. But the location will turn into a profit if oil prices go beyond a particular amount.