How to Calculate Total Cost: 13 Steps (with Pictures)

2024 Author: Jason Gerald | [email protected]. Last modified: 2024-01-15 08:07

When someone mentions the term "total cost" in finance, the conversation can be related to a variety of things. It may be referring to the costs of running a business, the costs that are in an individual's financial budget, or even the costs of getting something on offer (for example, to invest in the stock market.), the method will be the same, namely by adding fixed cost (the minimum cost required for the activity to run well) and variable cost (a fee whose amount depends on the rise or fall of the activity you are doing).

Step

Part 1 of 3: Calculating Total Costs for an Individual Finance Budget

Step 1. Calculate the fixed costs

Start by figuring out the total cost of living your day-to-day life for the period you're calculating. Individual financial budgets are usually (but not necessarily) prepared on a monthly basis.

• In this discussion, the definition of fixed costs is expenditure that is must paid every month such as rent, utility costs, telephone bills, fuel for motor vehicles, grocery shopping and other needs. The amount of fixed costs will not change too much, there are even costs that do not change at all, from month to month. This fee will not increase or decrease each month because the figure does not depend on expenses to meet personal needs, for example, if you spend a lot of time at your favorite clothing store, your rent will not increase significantly.
• For example, let's say we have to set up an individual budget to save money. In this discussion, let's assume the size of your fixed costs: rent = IDR 800,000, 00, utility costs = IDR 250,000, 00, telephone bill = IDR 25,000, 00, internet = IDR 35,000, 00, gasoline for transportation to places labor = Rp. 200,000, 00, and food expenditure = Rp. 900,000, 00. Add up all these costs, so we get a total fixed cost of Rp.2.210,000, 00

Step 2. Add up all your variable costs for one month

In contrast to fixed costs, the magnitude of variable costs depends on your lifestyle and all expenses that are not very important, but can improve your quality of life.

• Variable costs include expenses for going shopping, evening outings, clothes (more than you need,) vacations, parties, dining out at restaurants, etc. It should be noted that while there are certain costs that may vary slightly from month to month, such as utility costs, these are not variable costs as they are not optional.
• In the example we're discussing here, let's assume the variable costs to pay: cinema tickets = $25,000, 00, weekend getaway = $500, 00, dinner at a friend's birthday party = $100,000, and shoes new = IDR 75,000, 00. We will get a total variable cost of IDR 700,000, 00

Step 3. Add up the fixed costs and variable costs that you have calculated earlier to find out the total cost

The total cost that must be budgeted to cover all your living needs is the amount of money you have to spend for a period of one month. The formula is Fixed Cost + Variable Cost = Total Cost.

Based on the examples of fixed costs and variable costs above, we can calculate the total costs as follows: IDR 2,2100,000.00 (fixed costs) + IDR 700,000, 00 (variable costs) = Rp2,910,000,00 (total cost).

Step 4. Record each of your expenses to find out your monthly expenses

Unless you have very good financial management habits, it's okay to not record every expense in the current month, but this can be a problem if you have to calculate all expenses at the end of the month. So that you don't have to guess at the numbers, try to keep track of each of your expenses for the whole month. Once you're used to it, you'll know exactly how much your fixed costs will be, so you'll just need to keep track of the variable costs next.

• Recording expenses is very easy, you just need to record the expenses for housing (rent, etc.) and keep all the important monthly bills that you receive in the current month, and this task will do you well. It's a little more difficult to keep track of your grocery expenses, but if you keep all your receipts and monitor your bank account online, it shouldn't be difficult to know the exact total.
• Recording variable costs is usually more difficult. If you pay with a credit or debit card, you can find out how much you spent at the end of the month by accessing your online banking profile (almost all banks and credit card issuers provide the facility to check this account for free to their customers.) On the other hand, if you often spend money in cash or by check, keep all receipts or record the amount each time you make a purchase transaction.

Part 2 of 3: Calculating Total Cost for a Company

Step 1. Add up all of your company's fixed costs

In the company's activities, fixed costs are also known as indirect costs. This is the money needed by the company to maintain the continuity of its operations. More precisely, it can be said that fixed costs are costs that will not increase or decrease when the company increases or decreases the amount of goods or services produced.

• Fixed costs incurred by a company are the same (but not quite the same) as those in the individual budget. The company's fixed costs include rental costs, utility costs, rent and purchase of buildings, equipment, machinery, insurance premiums, and labor costs that are not related to the production process of goods and activities to produce services.

• For example, say we have a basketball factory. The factory's monthly fixed costs include: building rent = IDR 4 million, insurance premium = IDR 1.5 million, loan payments = IDR 3 million, and equipment = IDR 2.5 million. In addition, we have to pay a monthly fee of IDR 7 million for employees who do not directly affect basketball production, such as cleaners, security guards, and others. Add up all these costs, and our total fixed costs are IDR 18 million.

Step 2. Calculate the variable costs

Firm variable costs are somewhat different than variable costs in individual budgets. The definition of this cost is a cost that directly affects the amount of goods or services produced by the company. In other words, the higher the company's level of production (in terms of goods produced, services provided, etc.), the greater the amount of variable costs that must be incurred.

• Variable costs in a company include raw materials, shipping costs, labor costs directly related to the production process, and so on. In addition, utility costs can become variable costs if their amount fluctuates according to the amount of output from your company's activities. For example, because a car factory with robotic technology uses a large amount of electricity and the demand for this electricity will increase with the number of cars produced, utility costs in terms of electricity consumption can be classified as variable costs.

• In the example of the basketball factory that we discussed earlier, say the variable costs that must be incurred include: buying rubber = Rp. 1 million, shipping costs = Rp. 2 million, factory labor costs = Rp. 10 million. In addition, the factory requires large amounts of natural gas for the rubber vulcanization process and the cost increases according to the increase in production so that the utility bill for this month becomes Rp. 3 million. Add up all these costs, and our factory variable costs in total are IDR 16 million.

  

  Step 3. Add up the fixed costs and variable costs to get the total cost

  As with individual budgets, the formula for calculating a company's total costs is very simple: Fixed Cost + Variable Cost = Total Cost.

  • In this factory example, with fixed costs = IDR 18 million, and variable costs = IDR 16 million, the total cost of the plant for the current month = IDR 34 million.

  

  Step 4. Know your company's expenses through the Income Statement

  In general, the company's fixed costs and variable costs can be seen in the financial statements. In particular, the Income Statement must contain all the variable costs associated with the production process of the company's goods and services in addition to important fixed costs such as rental costs, utility costs, and so on. The Profit and Loss Statement is a standard financial document that almost all companies that apply bookkeeping should have for their operations.

  In addition, you will need to study another document called a Balance Sheet to calculate how much money the company will have to pay back at a later date. This report shows (in addition to other important figures) the company's debt, i.e. money borrowed from other parties. You can also determine whether or not your company's financial condition is healthy: if you can't make enough money to pay the company's total costs and you still have large debts, your company may be said to be in poor condition

  Part 3 of 3: Calculating the Total Cost of an Investment

  

  Step 1. Know the initial bid price of an investment

  When you need to calculate the cost of an investment, your expenses are usually not calculated based solely on the amount of money when you start investing and get your money back from investing in stocks, mutual funds, etc. For people who do not have direct access to the stock market (like most ordinary people), it is best to use the services of a consultant or stockbroker to build your portfolio, and with the fees paid for them, the total cost of this investment will be higher. than the amount of funds that must be set aside for investment. Start calculating the cost of your investment by determining the amount of money you want to spend solely on investment.

  For example, suppose there is a distant family who has just bequeathed Rp200 million. Instead of just being wasted on paying for a luxurious vacation, it would be better if this money was invested by buying shares in order to get the results of the long-term development of the fund. In this example, we want to invest IDR 100 million

  

  Step 2. Calculate the cost

  As explained above, investment consultants usually don't work without getting paid. In general, the payment for consulting services is done in two ways, it can be paid with a certain fee (usually hourly) or in the form of a commission (usually a certain percentage of the investment value.) You can calculate the total cost for both ways easily. For consulting services that are paid on an hourly basis, multiply this hourly rate by the amount of time spent managing your investment and add any other costs involved.

  • In order to provide an example, let's say we choose a consultant with an salary of IDR 2.5 million/hour (not bad, the consultant fee can reach IDR 5 million / hour.) If it is mutually agreed that managing your portfolio will take two hours, your consultant fee will be IDR 5 million. Let's say that there is another fee to be paid to the consultant in the amount of Rp. 1 million, then the total cost will be IDR 6 million.

  

  Step 3. If necessary, add a commission

  Another way to pay consultants who manage your investments is in the form of commissions. In general, this commission is calculated on the basis of a certain percentage of the total investment you purchased through your consultant. The more money you invest, the smaller this percentage will usually be.

  • In the example discussed earlier, let's say your consultant asks for a 2% commission in addition to his regular fee. This is just an example because in reality, the payment method used is usually only one, not both. In this case, because 2% of the IDR 100 million investment is IDR 2 million, add up this figure to the total cost.

  • Beware:

    Since the payout to the consultant is determined by how much you buy and sell shares, some well-known commission-paid investment consultants like to resort to the unethical way of convincing their clients to sell old shares more often and buy new shares to enrich themselves. Choose a consultant you know and can trust. To be safe, consultants who are paid a fee are less likely to have a conflict of interest.

  

  Step 4. Calculate the amount of tax on investment

  Finally, add if there is a cost of having to pay taxes to the government as part of the investment process. In the United States, taxes can (and do) be levied on income from investments after you've invested money, but when determining the total cost of these investments, you'll usually be worried about taxing them upfront. Investment tax provisions can vary from country to country so first discuss this tax burden with a trusted consultant before you invest.

  In the example above, say there is a 1% tax provision on large investments (in fact, it needs to be explained again that this provision may or may not apply in your country.) In this example, because 1% of IDR 100 million is IDR 1 million, add this number to the total cost.

  

  Step 5. Add up all costs

  Once you know how much the initial investment costs, the associated fees or commissions, and the estimated taxes to be paid, you can calculate the total cost by adding up these costs.

  • Let's solve this example problem:
  • Initial investment: IDR 100 million
  • Honor: IDR 6 million
  • Commission: IDR 2 million
  • Tax: IDR 1 million
  • Total: IDR 109 million

  Tips

  • You can use this total cost to determine if you will be able to make money. In the discussion using the example of the factory above, if we sell basketballs with an income of Rp. 39 million, we will make Rp. 5 million; good net income.
  • However, keep in mind that in the example above, taxes must be deducted from net income to get the net profit.