Delivering Profitable Innovation to Targeted Customers ◾ 83
shipping, etc., in order to arrive at the most accurate variable cost per unit.
Next, the fixed costs are to be determined. If you are not dedicating a com-
plete operation to the product, then you will have to do some homework as
to how much of the operation will be required to manufacture the product.
You can then take a proportion of the operation to properly allocate the
annual fixed cost for the product. As explained previously, the fixed cost
will be spread across the number of units.
The profit model is built and tested, which allows firms to understand the
profit to be gained with respect to the costs and various prices. Before we
build the profit model, it is essential that we disc ...