Smart in managing costs for Small Business Manufacturers
By : Hendra Sumantri Raharjaputra I am rather not sure that small business manufacturers know about the terms of costs . Cost accounting is not only dominating big companies to arrange of cost reduction and strategy, but also small manufactures . The difference of both is merely in economic of scale . The are using to applying “ common sense “ or “ rules of thumb “ based on their experience. So after being bigger and bigger they can not control their business , and not being of productive . Not only small business , but also accounting students look “ costing accounting “ like a monster to haunting them in class. Cost accounting is really not as monster as they think, especially in practicing . Understanding of the terms and cost behavioral How can you do cost reduction and control your small business without knowing costing ? Make all simple ! the terms and cost behavioral consist of two ; direct cost and indirect costs . “ Direct costs “ can be traced directly to a cost object such as a product or a department. In other words, direct costs do not have to be allocated to a product, department, or other cost object. For instance , you are making 100 breads dough , and you need raw materials such as flour, sugar, cheese, flavor of chocolate, strawberry , and others amount to $ 80, we called both direct costs and variable cost . The two costs have behavioral such variable costs per unit or piece or bread. If you make bread 100 pieces and then you plan to add becoming 150 pieces , you need 50 % raw material as noted previously. Some questions come up about labor costs. The answer is if you pay salary to your employee based on per unit. How if you pay salary monthly based , must it called as direct costs ? Tentatively , lets talk further . In a cost structure consist of two parts ; prime costs and conversion costs. Labor costs called as conversion costs , include overhead costs . In practice, many companies pay employees monthly based , it is mean that labor costs have two terms - fixed and conversion costs. Talking about making of bread , you must understand about cost structure which is picturing production costs – raw materials, labor costs and overhead costs . Indirect costs are costs that are not directly accountable to a cost object (such as a particular function or product). Indirect costs may be either fixed or variable. Indirect costs include taxes, administration, personnel and security costs, electricity cost, office supplies, and are also known as overhead. Setting your production costs The composition of production costs consist of raw materials, labor costs and overhead costs . For instance, you are making 10.000 pieces of bread a month , say you need material cost $8,000 ( 100 x $80 ) , labor costs $ 2,000, and overhead costs $ 2.000. Total Costs will be $ 12.000, called as production costs . Carefully, you have not calculated how much profit you expect, yet. If you want to get 25 % profit , you recalculate production costs with additional expected profit $3,000 ( 25% x $12,000 ). Then you decide the price of a piece of bread is $ 1.5 resulted from $12,000 add $3,000 divided by 10,000 . What are the further benefits of knowing about “ cost accounting for small business” ? visit http://www.bizztalks.com About Author I am an MBA graduate of PPM Business School in 1993 . It's one of the best of private business schools in my country . I am a founder and CEO bizztalks.com , which is having activity in publishing e-Books finance, accounting and business Disclaimer: Article submitters are solely responsible for the content of their articles. ArtiLib can't be held liable for the contents of the articles. Report Abuse | Browse By Category |
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