Reviewed by Jessica Thompson, CFO, Strategic Planner
This Fixed Expense Budget Calculator helps businesses determine the maximum sustainable budget for fixed expenses (F) given their sales price (P), variable costs (V), and sales volume goals (Q).
The **Fixed Expense Budget Calculator** uses the fundamental relationship in Cost-Volume-Profit (CVP) analysis to derive the total required funding (F), which sets the upper limit for your combined fixed costs and target profit. This tool ensures your overhead budget is fiscally responsible and aligns with revenue forecasts.
Fixed Expense Budget Calculator
Detailed Calculation Steps
Fixed Expense Budget Formula
The calculation is based on the core CVP relationship: the total contribution margin generated must equal the fixed expenses plus the target operating income. The formulas below allow you to solve for any missing variable.
Formula to Solve for Fixed Expense Budget (F)
F = Q × (P – V)
Formula to Solve for Sales Volume (Q)
Q = F / (P – V)
Formula to Solve for Selling Price (P)
P = V + (F / Q)
Formula to Solve for Variable Cost (V)
V = P – (F / Q)
Formula Source: Investopedia – CVP Analysis
Variables Explained
Understanding the inputs is key to effective fixed expense planning:
- **F (Fixed Expense Budget):** The total financial amount (Fixed Costs + Target Profit) that the company’s contribution margin is projected to cover. This is the maximum budget available for overheads and profit.
- **P (Selling Price Per Unit):** The unit price charged for the product or service.
- **V (Variable Cost Per Unit):** The direct cost of producing one unit (e.g., materials, direct labor).
- **Q (Sales Volume Target):** The anticipated or planned number of units to be sold over the budgeting period.
Related Calculators
Explore other financial tools that assist in budgeting and expense control:
- Break Even Point Calculator
- Margin of Safety Calculator
- Target Profit Sales Calculator
- Cost Volume Ratio Calculator
What is the Fixed Expense Budget Calculator?
This calculator is a forward-looking managerial tool that supports strategic cost control and budgeting. Instead of starting with a desired budget and hoping sales cover it, this calculator starts with projected sales (Q), established pricing (P), and unit costs (V) to calculate the maximum permissible fixed expense budget (F). This ensures that the budget ceiling is realistically achievable given market and operational constraints.
Using this tool helps prevent overspending on fixed overheads like rent, non-essential salaries, and long-term contracts. By setting a budget limit based on sales potential, businesses can maintain financial health and increase the likelihood of achieving their target profit goals.
How to Calculate Maximum Fixed Expense Budget (Example)
Here is a step-by-step example of how the calculation works when solving for the Fixed Expense Budget (F):
- **Define Price and Variable Cost (P & V):** The Selling Price (P) is $90, and the Variable Cost (V) is $35.
- **Determine Sales Volume Target (Q):** The company projects selling 5,000 units (Q).
- **Calculate Contribution Margin:** CM = P – V = $90 – $35 = $55 per unit.
- **Apply the Formula:** F = Q × CM. F = 5,000 × $55.
- **Find the Fixed Expense Budget (F):** F = $275,000. This is the total amount available from sales contribution to cover all fixed costs and the target profit. If the company sets its Target Profit at $50,000, its maximum Fixed Cost budget must be $225,000 ($275,000 – $50,000).
Frequently Asked Questions (FAQ)
How should I use F to set my actual budget?
The calculated F is the total available fund. You should subtract your desired Target Profit from F to determine the absolute maximum amount you can budget for Fixed Costs (rent, salaries, utilities, etc.). This ensures profitability.
What if my calculated F is lower than my current fixed costs?
If F is lower than your current fixed costs, your business is projected to lose money at the current price and volume levels. You must either reduce fixed costs, increase the selling price (P), or increase the sales volume target (Q).
What is the risk of using this calculator?
The primary risk is relying on inaccurate projections for P, V, or Q. If the sales volume target (Q) is overly optimistic, the calculated budget (F) will be too high, leading to overspending and actual losses.
Can I solve for a required price to meet a fixed budget?
Yes. If you know your maximum allowable Fixed Expense Budget (F), Variable Cost (V), and Sales Target (Q), you can leave P blank to solve for the minimum Selling Price required to support that budget.