Traceable and Common Fixed Costs
Fixed cost is the cost that will occur regularly basis regardless of the production quantity. The cost will remain the same over a period of month, quaterly and annually. Fixed cost will not change base on the production while the variable cost will be change depend on the number of production.
In the past, we believe that the fixed costs remain the same regardless of the business operation. However, now we can separate the fixed cost by different cost objects such as segment, location, and so on.
Traceable Fixed Cost
Traceable fixed cost is the fixed cost which the company is able to allocate to a specific segment, process, product, customer, location, or business unit. This fixed cost will depend on these variables. If these cost objects disappear, the cost associates will not happen too. These are the controllable fixed cost when we can control the cost object. However, it will be fixed when we execute the cost object.
This kind of cost should be separated into the income statement which helps management to make a decision. They may decide to continue or shut down any unprofitable product, process, or cost object.
Moreover, it helps us to prepare an income statement for each product, segment, region, and so on. It will help the management to access each category’s performance across the whole company. They can boost the performance of the most profitable and shut down low performance.
Traceable Fixed Cost Example
These are the example of traceable fixed cost which associate with
- Country manager’s salary
- Salary of staff who work directly in that region.
- Office Rental
- Utility expense
Common Fixed Cost
Common Fixed cost is the fixed cost that supports the business activities of the two or more business segments. It is very hard to separate the cost from each segment or unit. It the cost which is paid in total to cover all cost objectives in different business units, locations,s and so on.
Common Fixed Cost Example
These are the example of common fixed cost:
- Salary of CEO who manage all the business segments.
- Salary of the department who work at group level and benefit to all country office.