What would the major costs of your business be?
My business start-up of interest is a catering business. I have been a cook in several parties, and I always receive positive feedback, something that makes me feel confident about my skill to start this business. The major costs of this business are as outlined:
Direct Material: Cost of disposable cups, spoons, and plates, cost of fuel, cost of the food ingredients, oil, vegetables, and spices.
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Direct Labour: Salaries for cooks, assistants to contracted cooks, serving assistants, and delivery assistants.
Marketing OG: Menu card expenses, conveyance for marketing work.
Manufacturing OH: License expenses, rental of leased kitchen, and cleaning expenses.
Admin and General Expenses: Telephone and stationery expenses and salary of admin assistant.
Why would you need to determine the cost of providing your product or service to individual customers?
I will need to get an average customer’s job order cost for a number of reasons. First, I will incur various fixed overheads like marketing expenses, telephone conveyance, admin salary, and kitchen rent in order to run the business smoothly. I will need to recover all these expenses by billing the customers. That means that I will need to have a clue of the average food items that my customers would want, the expected direct costs, and the expected orders on a monthly basis. I will need to price the food in such a way that I get a profit after covering all the overheads and direct costs.
In general, would you expect your company’s indirect (overhead) costs to be less or more than the direct costs (direct labor and direct materials)?
I am not expecting the indirect costs to be more than the direct costs. I have done a calculation of the total job costs in a month based on the average number of plates that will be supplied and I then made an allocation of the overheads based on the total number of standard plates. For 800 standard plates supplied in a month, the indirect costs are amounting to $8.0 per plate.
Create a job sheet for a hypothetical “average” customer that includes the estimates of the major costs of serving that customer. How much do you think you will need to charge to cover all of the costs plus provide a reasonable profit for yourself?
Pricing each plate at $40 results in a fairly good margin of 15 percent PBT.
| Cost Sheet for a Month | ||
| Particulars | Details | Amount per Month ($) |
| Sales | Average of 50 plates for 15 days in a month at a price of $40 per plate | 30,000 |
| Direct Cost Material | Food ingredients costing $12.50 per plate | 9,750 |
| Disposable plates and cups each $1 | 750 | |
| Fuel at $2 per plate | 1,500 | |
| Direct Costs Labour | Salary for three cooks at $4.8 per plate | 3,600 |
| Salary for three assistant cooks at $4 per plate | 3,000 | |
| Serving assistants each $1 per plate | 750 | |
| Direct Transport Cost | Costs for transport @40 per trip where 15 trips are $0.8 per plate | 600 |
| Total direct costs | 19,950 | |
| Direct cost per plate | 750 plates a month | 26.60 |
|
Indirect Costs |
||
| License and hygiene expenses | 200 | |
| Rental for leased kitchen | 800 | |
| Total Indirect Cost | 1,000 | |
| Marketing OH | Conveyance for marketing | 500 |
| General OH | Admin assistant salary | 1,200 |
| Other stationery and telephone | 500 | |
| Bookkeeping Expenses | 500 | |
| Total General OH | 2,200 | |
| Total Cost | 23,150 | |
| Net Income | 4,400 | |
| % Net Income | 15% | |
| Overhead Allocation | Done per plate | |
| Total Number of Plates | 15 days per month @50 plates daily | 750 |
| The standard plate order has been taken for an average of 50 plates | ||
| The total order comes to a standard of 750 plates per month | ||
