Introduction

The Operating Cost Centre provides a calculator to show you the cost per hour of running your business. You do not have to fill anything in or use this section if you prefer not to. It makes no difference to the daily operations of AwardPro. However it is a good accounting tool that helps you understand the cost of running your business.

The Operating Cost Centre interacts with the Sales Analysis Tool to show the net profit of a job after operating cost per hour has been considered.

Department Cost Variations

In this version we have not offered a departmental dissection of costs in relation to Overhead as we felt that a)most machines in the Industry are relatively cheap and factored into an hourly rate make little difference and as a small business industry that has very few operators generating over five million dollars per annum the dissecting does not need to be so deep. We have decided on a simply business model of sharing the entire overhead evenly based on department turnover.

Disclaimer

The Operating Cost centre is a guide only to outcomes and can not be regarded as completely accurate. There are too many variables that may come into play but it will provide you with approximate information.

System Set Up > Operating Costs

Total Manufacturing Hours Worked Annual:

·         Work out how many Manufacturing Hours are involved in your business.

·         How many full time staff do you have and how many hours do they work?

·         How many part time or casual staff do you have and how many hours do they work?

·         What about people who do part administration and part Labour? That might be you. How many hours do you do in manufacturing each week?

·         Total this all up to an annual amount of manufacturing hours in your business.

·         Add total amount of hours here

Hours Lost Annual (holidays and sick leave)

·         Work out this by adding everyones holidays including public holidays and by estimating how many sickies happen in your business.

·         Add total amount of hours lost

Productivity Rate %

Now you know how many hours your business is available for manufacture you will know have to determine of those hours how many get waisted with no productivity. No single person produces a solid 8 hours every day, They chat they tidy up, they waist time in re-makes etc.

If you give your staff a note pad and ask then to write down the times taken on each job for a day you will be surprised to find that they total 5-6 hours even thought they were at work for 8 hours. It is standard manufacturing costing procedure to determine productivity rates.

Once you have decided on a productivity rate:

Enter the percentage value (such as 80%).

Press recalculate

Total Billing Hours

Possible Production Hours x Productivity Rate = Total Billing Hours

When you deduct the non productive hours you get the result of a realistic Total Billing Hours.

So you now have an amount of hours that you can re-coup costs and earn profits within.

Once you enter your Total Manufacturing Wages and your Total Overhead you will be able to see the hourly cost of operating your business per billable hour.  A very important figure.

Total Cost of Manufacturing Wages Annual:

Add in the complete cost of Manufacturing wages based upon the labour factoring you made earlier.

You can decide to include Workers Comp, Holiday Leave Loading and Superannuation to capture the absolute cost of manufacturing Labour. Or you can leave these values to the Overhead tally.

Total Cost of Overhead Annual:

Add in the complete cost of the business overhead.

That will be everything apart from Manufacturing Wages, any workers comp etc that you added to the man. wages. So the Overhead value will include the Office staff wages and very importantly the managing Directors wages. The directors wages should be included in the overhead so that the business can make a clear profit that is not related to standard renumeration earned by the Managing Director/s.

Overhead Cost per Productive Hour:

Total Overhead cost / Total Billing Hours

Labour Cost per Productive Hours:

Total Manufacturing cost / Total Billing Hours

Total Operational Cost per Hour:

Total Manufacturing cost + Total Overhead cost / Total Billing Hours

Based on the information you have entered this is an estimate of the cost of operating the business per billable hour not including component costs.

So it's your break even point per hour.  You have to earn this much money per hour per manufacturing person.

Operations Cost Mark Up:

Here were you determine the profit requirement for labour action.

Labour Sell Charge Per Hour:

Total Operating Cost per hour + Operation Cost Mark Up = Labour Sell Charge Per Hour

This is an estimate only. If you did not mark anything up and just applied time to make charge and the component cost it would give you the sell price based on manufacturing time factor.

Managers Visual guide to Outcomes

This is a visual guide only. An estimation calculator that shows you what the Earning before tax is in the business based on the figures you have entered and the Total Billable hours. It must not be seen as a correct figure as there are too many variables that will occur effecting the outcomes.

Based on the values you have entered this visual guide can show you an estimate only of the net profit before tax the business makes and what the hourly earnings is when you divide the profit by the billable hours. In the calculation the overheads and costs have been removed form the hourly earnings value to show the profit value of the earnings.

This is not a qualified value and must be seen as a rough guide only. Please consult your accountant for validation of Profit outcomes.