Model variable and fixed costs
See this course’s project requirements
A fictional twelve-month accrual income forecast with demand/capacity drivers, cost behavior, seasonality, sensitivity and revision log.
Keep your working files in your own notebook or software. Save a private description, checklist, and work link in My Proof.
What to include
- A feasible-unit and earned-revenue driver ledger.
- A twelve-month seasonal sales and capacity reconciliation.
- A cost-behavior and monthly profit bridge.
- A checked twelve-month income statement with annual bridge.
- A linked price/demand/cost sensitivity with twelve changed rows.
- An actual-versus-static/flexible profit bridge and revision log.
Review and revise
Use these criteria to check your work and choose what to improve.
- Drivers: demand/capacity/price/cost assumptions are explicit.
- Aggregation: all 12 monthly rows reconcile annual profit.
- Scenarios: linked changes update rounding/capacity consistently.
- Evidence: actual/flexible/static bridges and historical revisions remain separate.
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The idea in everyday life
Original fictional practice. All money is USD. No account, payment, personal record or outside participation is required. Original fictional service firm: monthly demand Jan.. Dec=80,90,100,110,120,130,140,150,160,170,180,190. Capacity 150 units/month; units=min(demand, capacity), no inventory/backlog. Each delivered unit earns 40 revenue and 22 variable cost; fixed operating expense 1,800/month and noncash depreciation 100/month. No interest, tax or owner withdrawal modeled. Revenue is earned on delivery, not payment arrival. January actual:90 units, price 38, variable cost 23/unit, fixed 1,800, depreciation 100. Linked price scenario: price 44, demand falls 10% rounded down to whole units, capacity 150; other costs initially fixed.
Operating profit includes noncash expense and differs from operating cash.
Model variable and fixed costs — complete worked case
Operating profit includes noncash expense and differs from operating cash.
Original fictional service firm: monthly demand Jan.. Dec=80,90,100,110,120,130,140,150,160,170,180,190. Capacity 150 units/month; units=min(demand, capacity), no inventory/backlog. Each delivered unit earns 40 revenue and 22 variable cost; fixed operating expense 1,800/month and noncash depreciation 100/month. No interest, tax or owner withdrawal modeled. Revenue is earned on delivery, not payment arrival. January actual:90 units, price 38, variable cost 23/unit, fixed 1,800, depreciation 100. Linked price scenario: price 44, demand falls 10% rounded down to whole units, capacity 150; other costs initially fixed.
Complete monthly drivers
Paste at A1.
| AMonth | BDemand | CCapacity | DUnits | ERevenue | FVariable cost | GFixed+depreciation | HProfit |
|---|---|---|---|---|---|---|---|
| 1 | 80 | 150 | 80 | 3200 | 1760 | 1900 | -460 |
| 2 | 90 | 150 | 90 | 3600 | 1980 | 1900 | -280 |
| 3 | 100 | 150 | 100 | 4000 | 2200 | 1900 | -100 |
| 4 | 110 | 150 | 110 | 4400 | 2420 | 1900 | 80 |
| 5 | 120 | 150 | 120 | 4800 | 2640 | 1900 | 260 |
| 6 | 130 | 150 | 130 | 5200 | 2860 | 1900 | 440 |
| 7 | 140 | 150 | 140 | 5600 | 3080 | 1900 | 620 |
| 8 | 150 | 150 | 150 | 6000 | 3300 | 1900 | 800 |
| 9 | 160 | 150 | 150 | 6000 | 3300 | 1900 | 800 |
| 10 | 170 | 150 | 150 | 6000 | 3300 | 1900 | 800 |
| 11 | 180 | 150 | 150 | 6000 | 3300 | 1900 | 800 |
| 12 | 190 | 150 | 150 | 6000 | 3300 | 1900 | 800 |
Copy as plain text
1. 3.1 Model
Separate per-unit 22 from monthly 1,800 and 100 allocation.
You should see: Different cost bases stay explicit.
2. 3.2 Model
Calculate january/150 unit variable costs.
You should see: 1,760/3,300.
3. 3.3 Model
Subtract all stated expenses from earned revenue to show profit−460/800.
You should see: Negative profit is labelled, not discarded.
4. 3.4 Model
Raise variable cost to 24 and calculate 150 unit profit 500.
You should see: Revenue 6,000−cost 3,600−1,900=500.
What to finish
A cost-behavior and monthly profit bridge.
Watch for this
Ignoring depreciation because it is noncash or treating fixed 1,800 as per-unit expense.
How can I tell I understand it?
Verify that your completed cost-behavior and monthly profit bridge meets the three lesson-specific checks and retains the supporting original records.
Quick knowledge check
Answer all 3 questions. Get at least 2 right and the lesson completes automatically.
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Pass the check. We’ll save the progress.
Answer all 3 questions above and get at least 2 right. You can review the explanations and try again.
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Source & access notes · checked 2026-10-01
Read flexible/rolling budget roles and revision; a projection remains an assumption-led model, not evidence of future sales.
Access: Public primary page body opened and relevant sections read through the web reader on 2026-10-01; no account required for reading.
Reuse: Original Life Starter cases, datasets and questions; no source exercise or worked dataset reproduced. Links support further reading.
Source & access notes · checked 2026-10-01
Read revenue/activity and variable/fixed operating budgets, noncash expense and income-statement assembly; all monthly driver values are original.
Access: Public primary page body opened and relevant sections read through the web reader on 2026-10-01; no account required for reading.
Reuse: Original Life Starter cases, datasets and questions; no source exercise or worked dataset reproduced. Links support further reading.
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