Accounting & Bookkeeping & Small Business Forum

[charlie57]

The company I work for modifies trucks. Our sales are about 2 million a year. Every truck is different but we have a standard format to estimate the cost of each job. I have been put in charge of updating our system. I need some advice on the best way to do this.
This is what I believe I need to do, First I need to know how much is our monthly operating cost, our utilities, insurance, parts truck etc. Is there where all salaried people would be added?
Next I need to figure out our shop cost, how do I do this and how does the productions employees pay figure in to this. I do not understand where this comes from but I know it changes with their pay changes.
I need to know how many billable hours a month need to be worked before we start making money?
I'll start off with this question, if I need to add more information just let me know.
Charlie

[sgbdad23]

WHat you need to do is first isolate your fixed cost items:
Rent
Utilities
Insurance
andministrative costs
and labor assuming that every one works the same amount of hours each month
Pand payroll taxes
Then comes your variable costs
materials
supplies
etc....
When these are added together, you get your gross monthly cost, add to it your profit percentage, for this we will use 10%.

Now divide this total number by the amount of man hours you are open each month, and you have your wrap rate.
1 person @ 40 hours/ week for 4 weeks is 160 man hours per month
2 would be 320 / month and so on

Scott

[RobJ]

charlie57 wrote: I have been put in charge of updating our system. I need some advice on the best way to do this.
Charlie,

What do you mean by "update the system"?

Rob

[Ahshucks]

Charlie ... this is probably easier to accomplish by actually completing an annual month by month budget to begin with. It also gives the boss something to play with to get him on board with your work.

Direct Labor Rate: Start with your payroll budget and identify employees working in direct roles. You might even take it further by identifying them to tasks such as welding, machining, finishing to calculate an average rate for each task. You'll need to add overtime, statutory benefits, other benefits. Then divide that total by the annual hours (2080) less hours for holiday, vacation, sick, direct on indirect, etc., which provides you with the average rate.

Direct Predetermined Overhead Rate: The hours (or divisor) for this number was calculated above at the end of the Labor Rate. Divide your indirect shop costs (weld rod, rags, machining oil, etc.) by this amount to obtain your Predetermined Overhead Rate.

Direct Material: Identify your direct material cost used in such projects.

Gross Profit: Sales less (Direct Material) less (Direct Labor) less (Overhead) less/plus (Overhead Variance)

Break your Income Statement out from this point to a Contribution statement. The first section should be Contribution to Variable Costs, the last section should be Contribution to Fixed Costs.

Note that the percentage of Fixed Costs to Sales will reduce as the sales number increases. COGS and variable costs could vary slightly right along with the change in sales.

Now that you have completed these worksheets on a monthly basis, you're in position for a forecasting statement, creating a cash flow plan, and creating incremental scenarios. You're ready for bank needs as well as the owners.