What are individual costs?
Every entrepreneur has more or less to do with costs and cost calculation in his practice. Profit expectations can only be realized if all costs are correctly recorded. An important term in cost accounting is called individual costs. What does this mean?
Individual costs are required for the cost calculation of a product. In general, this includes all those costs that can be allocated to a product or service (the respective cost bearers). The amount of the costs depends on the amount produced.
What individual and overhead costs are in the full cost calculation
For an operator of a pizzeria or a smartphone manufacturer, overheads and individual costs are equally interesting.
- Only those who exactly know the overhead costs will stay with their profit expectations in the business plan. If you seriously calculate the overhead costs as part of the full cost calculation, the real production price results from the calculated individual costs.
- Basically, overhead costs are those costs that cannot be directly allocated. If you add them to the individual costs, you get the actual production costs. Typical overhead costs include administration and storage costs or contributions for insurance companies and employers' liability insurance associations.
- Lump sums are usually used for the calculation and the sum is allocated to the respective cost bearers (product, service). When calculating full costs, a distinction is also made between overhead costs for production, material use, administration and sales expenses.
The concept of fixed overheads is an aspect of full cost accounting and thus of ...
Individual costs explained using the example
For example, suppose you run a pizza place and want to work out the cost of a cup of coffee. All those items are recorded as direct costs that you need to manufacture the product.
- You add up coffee beans, milk portion and sugar as direct material costs and add the time required as direct production costs. Material (0.30 euros) and production costs (0.70 euros) result in the production overheads.
- Without the preparation of the cup of coffee, these costs would not arise. Because the costs can be allocated directly, you can determine them in euros. It can be calculated how high the purchase price is for the quantity required in each case.
- The manufacturing costs of a product also include other costs that cannot be directly allocated to a product. In the case of your pizzeria, these overheads would be, for example, the acquisition costs for the coffee cup, heating costs, coffee machine and inventory. They accrue in the amount of 0.50 euros.
Accordingly, the full cost calculation results in a cost price of 1.50 euros and the sales price is 3 euros, making a gross profit of 50 percent. Increasing individual or overhead costs result in lower profits if the sales price remains unchanged.
