There is actually a danger if you implement direct costing in isolation. You avoid the problem if you embed direct costing into an integrated budget system that also integrates the fixed cost pools that are not distributed to products. A simple schema illustrates the fundamental idea.
There is a gap between the two marginal income amounts, which needs to be closed. If there is reconciliation, a continuous nomogram of the revenue is produced using variable and fixed costs up to the result.
Sales |
||
| - | Variable Costs | |
= |
Marginal income } split by product group, product ... |
|
| - | Fixed Costs | |
= |
Result } split by cost center and cost type. |
|
Each change to the marginal income is calculated immediately up to the result
and reveals the change of amount that is required if the result is to be retained. Using this type of integrated budget system, you can easily benefit from the many advantages of direct costing.
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