Читать книгу Cost Accounting For Dummies - Kenneth W. Boyd - Страница 105

In this section, you apply indirect costs to your product or service. You also plan direct and indirect costs using a normal costing system. Actual costs represent what comes out of your checkbook. You determine actual costs after the work is completed. Normal costing instead uses budgeted data, which is generated before the work is completed. Normal costing uses a budgeted price or rate and multiplies that rate by the actual quantity used.

It’s difficult to plan your work without some budgeted rates of cost. That’s the purpose of normal costing. The process creates budgeted rates that you can use to plan your work. You don’t have to wait until the end of the job and determine your actual costs. You can find more on budgeting in Chapter 6.

Let’s say you operate a landscaping company. Changes in costs can make planning difficult, and the changes may be higher or lower. Maybe the costs you pay for materials, labor, and other costs change as the year goes on. The cost of grass seed may go up, increasing your material costs. Or your labor costs decline because the economy slows. More people with the needed skills are looking for landscaping work, so you can offer a lower pay rate.

If you use actual costs, which change over time, it’s difficult to price your product to generate a reasonable profit. For example, if you had a 15 percent profit above costs, a cost increase will eat away at your profit. Maybe higher costs lower your profit to 10 percent.

It’s also harder to plan your cash needs. If you need to buy $10,000 of grass seed in the next 30 days, what if the price goes up? Maybe a shortage increases your grass seed cost to $12,000. That means that the check you need to write will be $12,000, not $10,000. Now you need to have $2,000 more cash available.

Budgeting and cash management is similar to planning a vacation. First, you determine the costs (airline, car rental, hotel, gas). Next, you plan your cash flow to pay for the vacation cost. If the prices are constantly changing, planning is difficult. Many people try to book a vacation trip well in advance, so prices are fixed for the trip!