Fixed and 
Variable Cost
Analysis
Example

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The "fixed" and "variable" costs calculated are not the actual fixed and variable costs of the supplier. The "variable" costs calculated include direct material, direct labor, variable overhead and profit. Use this analysis tool to estimate pricing for quantities not quoted and establish target prices. It also is able to generate data for break-even analysis, price productivity analysis (macro and micro), learning curve and stanford-b analysis (see Cost Analysis Notebook). For "specific" pricing (1unit for $10.00, 2 units for $9.50 each) input the quantities and price respectively.For "range" pricing (1-4 units for $10.00 each, 5-9 units for $9.50 each) input the highest quantity in the range (4 units and 9 units in this example) and its respective price. For "open ended" pricing (500-999 units for $3.50, 1,000+ units for $3.00 each), stop at the last quantity and price prior to the open ended price (999 units).

The more linear the relationship between various quantity and prices the more rational the pricing. If you find this relationship we suggest that you continue with further analyses especially quantity discount analysis. The more inconsistent the relationship between quantity and prices (wide differences in both fixed and variable costs) the more irrational the price formula is in our opinion pricing. We suggest questioning the supplier prior to performing additional price or cost analyses beyond Quantity Discount Analysis.

To select fixed and variable costs for further analyses we suggest you use those that are the most accurate predictor of quoted prices in between two selected points or use the costs that best fits your experience based on industry knowledge. For additional information on this subject see: Price and Discount Schedule Analysis; Kuzdrall, Paul J. & Robert R. Britney, Quorum Books, New York, NY.