I would like to formalise this problem with system dynamics: I have a stock of raw materials and one of finished goods, among them I have a production flow that has a certain value (e.g 1000 units per day). My goal is to calculate the manufacturing cost, so I create a flow that feeds a stock "manufacturing cost" and within the flow I have the product of:
Manufacturing_cost_flow = Unit_variable_cost * production_rate [$/unit] * [unit/time]
Now, I would like to enter the fixed costs. In particular, if I have a shortage of raw materials (so RM = 0 --> production_rate = 0) the manufacturing_cost_flow will be 0 but, in fact, I have to sustain a fixed cost. Taking into account the fact that fixed costs are in $, how can i add them in the "manufacturing_cost_flow" ?
Picture of the problem: problem
fixed costs are not in $, they are in $/time... what would be in $ units would be initial investment or something like that..
Initial investment would go directly as an initial value of your stock.
Fixed costs are for example rent... and rent is $/month, another example of fixed costs is insurance... and you pay insurance every month too.. which means it's also $/month
The are called fixed, because the are the same amount every month, while manufacturing costs are not the same every month and depend on what you produced
You should make your fixed costs as $/time units and you are totally fine... unless you have initial investments, in which case you don't need that parameter at all