# Fixed cost coverage calculation

The fixed cost coverage calculation (or multi-level contribution margin calculation ) is an essential component and a method of business cost accounting . In contrast to the single-level contribution margin calculation ( direct costing ), in which the contribution margin is compared directly to the total of the fixed costs, the fixed cost coverage calculation is divided into several levels.

## Practical approach

In the first stage, the fixed cost coverage calculation - analogous to direct costing - basically assumes a separation into variable costs and fixed costs . In the various other levels, the fixed costs are further divided or "graded" according to the degree of their attributability to a specific product:

• Fixed product costs

Costs caused by development, manufacturing and distribution. They can only be assigned to the total number of products within a period, not to each individual (e.g. salaries for machine operators).

• Product group fixed costs

Costs can only be assigned to one group of products, e.g. B. Costs for special machines that are only incurred for one product group.

• Fixed cost center costs

Occur at a specific cost center and are therefore not directly offset against the products (e.g. salaries that are not incurred due to production).

• Area fixed costs

They are to be assigned to a cost area as a group of cost centers (e.g. fixed costs of the administrative area).

• Company fixed costs

They are the so-called “residual fixed costs” and therefore cannot be assigned to any other level (e.g. management costs due to the goods produced).

### Imputability

The attribution to a specific product is based on the causal allocation of costs, i.e. the individual cost character of the fixed costs. Thus, a “coding” of costs (e.g. 50% of 100 euros of company fixed costs are allocated to area A, 50% to area B, because they each have the same number of employees ) is prohibited in the calculation of fixed cost coverage.

As soon as you code a cost element - whatever - because you can no longer assign it hierarchically “lower”, you violate the causation-based assignment in the sense of the fixed cost coverage calculation.

### Numerical example

Expressed in contribution margins , the fixed cost coverage calculation looks like this:

Area A Area B
Costing object Product a1 Product a2 Product b1 Product b2 Product c
Net sales 1000 5000 750 200 500
./. variable costs 100 1000 250 50 80
= Contribution margin I. 900 4000 500 150 420
./. Fixed product costs 100 800 100 40 20th
= Contribution margin II 800 3200 400 110 400
= Subtotal 4000 510 400
./. Product group fixed costs 1900 210 110
= Contribution margin III 2100 300 290
Subtotal 2100 590
./. Area fixed costs 1100 290
= Contribution margin IV 1000 300
= Subtotal 1300
./. Company fixed costs 800
= Contribution margin V / operating result 500