Standard fixed cost

The standard unit fixed cost is based on a production time multiplied by an hourly rate.

Production fixed costs (= non-proportional costs + depreciation) are costs incurred for the manufacturing of products that, within certain output or turnover limits, tend to be unaffected by fluctuations in the level of activity.
Another term that can be used to refer to a fixed cost is a period cost. This highlights the fact that a fixed cost incurred according to the time elapsed, rather than to the level of activity.

Standards are set at attainable levels which assume efficient levels of operation, but which include allowances for factors such as losses, waste and machine downtime.

Content of standard fixed costs:

• Fixed costs are made up of all costs either managed or contracted by the enterprise incurred for the manufacturing of products. They include costs directly managed by the plant but also costs managed by other functions that are necessary for the production process.
• Costs that are not involved in the production process should not be included.
• Production fixed costs are accounted on direct or indirect production cost centers. They are allocated to finished product cost using machine hours and related hourly rate. These hourly rates are defined once a year. In the course of the year, they should be reviewed only in the event of a major change to the structure or the activity.
• Distinction between proportional (variable) costs and fixed costs is based on the destination cost centers of the expense (and not on the nature of the expense).

The “standard fixed cost budget” has to be calculated in a consistent manner with the yearly “normal capacity”.