Cost Centres and Hourly Rates

Overview

Cost Centres in BOS are essential for accurately calculating the hourly rates necessary for estimating the cost of services and operations. These rates help track actual costs and provide insights into the efficiency and profitability of various Cost Centres. The system calculates hourly rates based on monthly costs, including equipment, operators, and maintenance, and can optionally factor in overheads such as rent and electricity. This guide details the steps for setting up cost centres, calculating hourly rates, and incorporating best practices for optimal usage and cost management.

Define the Direct Monthly Costs of your Production Cost Centres

• Equipment Costs - Calculate the (virtual) monthly cost of equipment by considering it is financed over 3-5 years. 

• Operator Costs - Add the monthly salaries and wages of operators working within the cost centre.

• Maintenance Costs - Include the estimated monthly costs for maintaining equipment and and consumables.

Hourly Rate Calculation

• Annual Cost = Monthly Cost x 12

• Weekly Cost = Annual Cost / Weeks worked per Annum (Typically 47 weeks after allowing for annual shutdown and public holidays)

• Hourly Rate = Weekly Cost / Hours worked per week (Typically 32 hours at an 80% efficiency)

Include Overhead Costs in your Hourly Rate (Optional)

Direct Overhead Allocation 

If your services make up the bulk of your turnover, you can add overheads (rent, electricity, admin salaries, etc.) directly to the hourly rate calculation. BOS can proportionally allocate overhead amounts to production Cost Centres based on their monthly costs.

Indirect Overhead Allocation

For businesses where outsourced work/products or material costs are substantial, it's advisable to recover overheads through an additional markup on all products, not just services.

Best Practices and Usage Guidelines

Base your initial hourly rates on an ideal productivity scenario, considering sufficient sales volume. Avoid setting the productivity too low, as this might price your services out of the market.

BOS ERP will track the usage of Cost Centres over time, allowing you to validate initial assumptions and adjust productivity settings as necessary.

Understand that hourly rates will vary significantly depending on whether Cost Centres operate single or double shifts. Adjust calculations accordingly to reflect the true productive hours.

Periodically review and update Cost Centre calculations to reflect changes in costs and productivity.

Compare your Cost Centre performance against industry benchmarks to identify areas for improvement.