It's time to make sure that your estimating and costing processes are telling the TRUTH!
Providing your clients with prices that are
guaranteed to generate profits is only possible when all of your operational costs are
reflected in the selling prices of individual products.
Direct material and direct labor costs are simple to quantify, however how do we know how
much of our monthly rent or telephone bill needs to be charged on each job that we
produce? One solution is to wait until year end and divide our total costs by the number
of jobs produced in that year. This would only be accurate if every job was identical. This
is extremely rare in the Graphic Arts industry! Therefore, we must use a predetermined
Budgeted Hourly Rate (BHR) that is based on the proper allocation of factory and
administrative costs to all products and services.
Having accurate and current BHR's is the first step to generating higher profits.
These rates reflect the all-inclusive or fully absorbed costs of doing business, and
should be adjusted as events unfold which may change the costs of operating business.
Updating hourly rates to reflect these changes can be an arduous task!
PSK & Associates developed SEXTANT to streamline this chore. The initial setup
process can be reduced to two hours or less using this Windows-based
software, and periodic maintenance can be accomplished in minutes!
Once company information has been entered into the program, costing information will be
available at your fingertips. When changes within organizations dictate that the hourly
rates should be reviewed, the information will be available for printing or viewing
quickly and easily. Entering the changes can result in SEXTANT recalculating new
rates in seconds. Typical changes may include:
Equipment acquisitions or disposal
Employee hiring or terminating
Changes in rent or occupied space
Wages or benefits adjustments
Costs of insurance, utilities or taxes
Cost center additions / deletions
Increases / decreases in productivity
You may sell your products for whatever prices the market will bear. Your
operational costs do not change from job to job, however they certainly have an impact on
your ability to generate profits! Setting prices without knowing your true costs of
operation is a formula for disaster!
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