To the cost of working time, materials and machine costs, etc. must be added a fair proportion of the workshop overheads and other indirect expenses. Workshop overheads will be all the indirect costs incurred by the workshop which cannot be debited entirely to one particular job. i.e. foreman's time in general supervision, heating, lighting, maintenance and repairs, carriage of goods 'in' and sundry materials, etc., but not including rent, rates, insurances or interest on capital. Indirect expenses will be salaries, rent, rates, insurances, office expenses, car expenses, depreciation, audit fees, interest on capital, profit, etc. Both workshop overheads and indirect expenses will be expressed as percentage additions to the direct cost of the work.
Where the business has been in existence for some time accurate assessment of all indirect expenses can be made, but new businesses will have to estimate for them until sufficient data have been accumulated. A typical costing
Estimated total yearly wages paid say 20,000 Estimated insurances, paid holidays, pensions, etc.
say 10 per cent 2,000
Estimated workshop overheads at 40 per cent on 22,000 8,800
Estimated materials consumed at cost 10.000
15 per cent profit 1.500
Estimated indirect expenses at 20 per cent
Estimated total turnover
42,300 8,460 50,760
where many of the factors are still unknown could be as follows:
From the above example it will be seen that out of the total estimated turnover the cost of the workshop overheads plus the profit on materials would be available for all the indirect expenses of the workshop, and an additional 20 per cent of the estimated indirect expenses to provide for all expenses incurred in running the business, including the owner's own remuneration and profit over and above the wages he would pay himself if he also worked at the bench with his craftsmen. Working masters who do not employ craftsmen often price their work at the standard craftsman's rate per hour plus 50 per cent, plus the bare cost of the materials used, but they will usually find that they are either grossly underpaying themselves or rapidly drifting into bankruptcy.
Where fixed sums for specialist subcontractors have to be included in an estimate, i.e. prime cost sums where the exact cost is known, or provisional sums to cover the probable cost, it is usual to add a 5 per cent charge for handling.
If the proprietor maintains his own transport for the conveyance of finished furniture, the cost per running mile must be arrived at and added accordingly; or if transport is to be hired on each occasion then the estimated cost can be added before or after indirect expenses have been included in the final estimate.
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