The fundamental purpose of cost accounting is to provide management with the financial information generated by the economic entity. It is impossible for a merchant to be prosperous if he does not know the accounting of his company
Accounting is not alone in collecting the data that is given after an activity. It must also be present in the strategic planting of the expenses that are going to be made so as not to lose control of the company.
One of the most interesting divisions of accounting is called Cost Accounting. This provides a measurement of the inputs of all kinds that are needed to produce the good or service to which the company is dedicated and also informs us of how much it takes to continue operating.
Now, if we consider that a company has a lucrative purpose, that is, that it wants to earn an economic surplus after fulfilling its mission. It is logical to suppose that all its operation must be backed by a budget for expenses, which in turn is the result of the profits obtained from economic activity. In short, all the expenses and costs incurred by the company must be considered for the formation of the price of the goods it produces or the services it provides.
The previous comment is to clarify that production costs are not only limited to raw materials, as some entrepreneurs mistakenly think, but include various types of elements to arrive at Total Cost.
Although it is true that the components of the total cost are: labor, raw materials, general expenses, administration expenses, depreciation of machinery and tools, this time we will talk about the first one.
Labor: When we talk about labor costs, we mean all the payments that the company incurs for all of its employees. In addition, we are not only referring to the net monthly payments to the worker, but also to those that make up the service charge required by law.
To start, make a complete list of all the operations that are carried out in your company for the production of your products and how long it takes for each of these steps, this will order your time and help you to better dispose of your resource.
To help yourself better, prepare the table of operations that includes, in addition to the above data, the name of the product and the number of units to which it refers. Sort alphabetically the list of operations and allocate a space for the hours spent to do such an operation, now you can better calculate what is the unit value of the hour and finally the cost of labor spent.
To estimate the time each operation takes, refer to the observation of an average operator, but remember that he is still a man and not a machine. You can also measure the number of products made in a certain period of time, it all depends on how it suits you best.
Now, how to do to know the unit cost of the hour of labor ?. The first thing is to know what is the average monthly cost per worker. This depends on the additional payments you make to the wages of your workers. (For more detailed information on the corresponding percentages, refer to an office of the Ministry of Labor in your country.).
Always keep in mind that the monthly salary is always increased by some percentage, and that this new result is the price you should use to calculate the hourly value for that operator.
Since we know how much the operator earns monthly, it is easier to calculate the hourly value dividing by the number of days per week and hours of daily work that are stipulated in the law of your country, or conversely by the number of hours that your employee works..
Although up to now everything seems very simple, the reality is that in the case of the micro-business the owner also works in it, but at the same time performs administration tasks. In this case, the solution is to divide the owner's time into two parts: the one dedicated to production work and the one dedicated to business administration. Then set the hour value of your work. The latter is accomplished by counting how many hours you work per week and then per month.
Now you will see how accounting serves you; Since you are an orderly executive, you have recorded all your personal expenses. If you divide the total of your personal expenses in the month, by the number of hours you work monthly and give what your company costs per hour.
Note that the more expenses you have, the more expensive it will be for the company and this will increase the cost of the product. On the other hand, the more hours the owner works, the less it will cost the company.
We recommend that you limit your expenses or better, set a salary like another of your workers, this will order your expenses and you will be more relaxed to develop your company.
Don't be discouraged; You should only do this series of calculations once. With these data you can complete the table of operations and with this you can better set your prices.
