The Cost Centre module is used to calculate production hourly rates which, in turn, are used to calculate the cost of Services. Cost Centre setup is a key part of using the Estimating module accurately. This ensures that overhead costs and production costs are covered in every Estimate so that all business costs are covered. Hourly rates are calculated by:

• Adding Overheads as a non-production Cost Centre, and

• Adding Production Cost Centres

What You'll Find on this Page

1. Cost Centres

2. Creating a Cost Centre

3. Creating an Overhead Cost Centre

4. How to Create a Production Cost Centre

   • Using the Wizard to Add Costs

5. Overhead Costing Models

6. Calculating Hourly Rate

Navigation

Main menu > Setup > Cost Centres

1. Cost Centres

This Data Grid shows an overview and Summary of all the Cost Centres in the business. This is useful for instant access to information for insightful decision-making.

1. Data Grid - This shows the Cost Centres listed by Name, Type, Entity, Production, Hours, Weeks, Overhead %, Fix, Overhead, Equipment, Labour, Maintenance, Other, Total, Cost per Hour, Adjustment per Hour, Rate per Hour, and Fix.

2. Summary - This shows a Summary of totals for Overhead percentage, Overhead, Equipment, Labour, Maintenance, Other, Total, and Adjustment per Hour.

2. Creating a Cost Centre

1. Name - This is where the description of the Cost Centre is added. Keep it short - it is used throughout the application.

2. Entities - If the Cost Centre is linked to Entities, these can be added here.

3. Type - This is to specify the type of Cost Centre and depends on where the Cost Centre will be used, such as Overhead, Printing, etc. Additional types can be added under Setup > Production Types.

4. Production - The production check box is to differentiate the Cost Centre as either an Overhead Cost Centre or a Production Cost Centre. The hourly rate is equated to the productivity of that Cost Centre - or how many productive weeks and hours are allocated to that cost centre.

   • Hours/Week - With 40 hours available per week, most people are only productive 80% of the time, leaving 32 productive hours per week.

   • Weeks/Annum - With 52 weeks in a year, not every week is productive. There are two weeks of public holidays, and three weeks of annual leave, leaving 48 productive weeks in a year

5. Costs - This is where every cost that is required to make this Cost Centre operational is entered. This includes costs such as Maintenance, cost of purchase/lease, Operators and Assistant Operators. The amount can be added in the Weekly, Monthly or Annual column and the Total/month will be calculated accordingly. The Total/month of the direct costs (Equipment, Labour, and Maintenance) is calculated at the bottom of the grid view.

6. Wizard - Functionality is provided to calculate the equipment, labour and maintenance costs of the Cost Centre by use of the Cost Centre Wizard. See more below.

7. Totals - This section shows the various calculated and fixed totals of the Cost Centre.

   • Overhead - These costs are automatically calculated and shown as a percentage. This percentage shows what portion of the business's overheads are allocated to this Cost Centre. It is also displayed as a Rand value.

   • Monthly cost - This is the sum value of the Overhead cost plus the Total/month value, and reflects what the actual cost of that Cost Centre is per month.

   • Hourly cost - This is calculated as the Monthly cost divided by the ave productive hours per week.

   • Hourly rate and Hourly cost are calculated as the same.

   • If a markup or Adjustment is required, enter a Rand value in the Adjustment field to automatically update the Hourly rate.

8. Overhead Fix check box - Functionality is provided to override the Overhead allocation. To override the Overhead, check the Fix check box and enter the fixed Rand value you wish to allocate to this Cost Centre. If the Overhead allocation is fixed in one Cost Centre, the automatic allocation on all the other Cost Centres will be changed, so that the total Overhead allocation remains at 100%. To create a fixed Hourly rate, check the Fix check box and type in a Rand value for the Hourly rate. This will also automatically calculate and reflect the Adjustment for that Cost Centre.

9. Hourly rate Fix check box - Functionality is provided to override calculated Hourly rate. To override the Overhead, check the Fix check box and enter the fixed Rand value you wish to allocate to this Cost Centre

10. Recovery panel - This displays the actual productivity and income generated from a Cost Centre. The graph on the left is a visual representation of work allocated against that cost centre. The 12 Month History on the right shows a month-by-month overview of Total Hrs and Total value for the Cost Centre. Over time this can be used to ascertain if an adjustment to the initial Productivity values is required in order to reflect how long and often the Cost Centre is being utlised. This, in turn, will adjust the hourly rate to show a more accurate running-cost value for that Cost Centre, and ensure the expenses of that Cost Centre are covered.

3. Creating an Overhead Cost Centre

The Overheads, or indirect costs, include costs that are not directly recoverable from the sale of a product or a service. These include costs such as admin salaries, rent, electricity, etc. Essentially the expenses from the Income Statement less the production salaries.

These expenses can be added to the Overhead Cost Centre individually or as a combined total. For ease of maintenance, it is recommended to enter the combined total.

All the costs in the Overhead Cost Centres are automatically added to Production costs.

1. Description - Enter Overhead in the the Description field.

2. Type - Select Overhead from the drop down menu in the Type field.

3. Production - Uncheck the Production check box .

4. Costs - Click the Add button and enter a Description (typically 'Overheads') and the overhead amount.

4. How to Create a Production Cost Centre

The cost of services is calculated by dividing the business into production centres. Direct and indirect costs are then allocated to each cost centre. In this model, direct costs include equipment costs, maintenance and labour. The monthly costs are totaled and the hourly rate is calculated by dividing the monthly cost by the productive hours of the Cost Centre.

1. Description - Enter a description for this Cost Centre. Keep this as short as possible, as it will be used elsewhere throughout QuickEasy BOS.

2. Type - Select the appropriate type from the drop down list. This depends on where the cost centre will be used.

3. Production - Keep the production check box checked to indicate that it is a production cost centre.

4. Costs - Click the Add button and enter a Description. Select a Type from the drop down menu. Add the amount in the Weekly, Monthly or Annual column.

Using the Wizard to Add Costs

Costs can be added manually - as above - or by making use of the Wizard to calculate the equipment, labour and maintenance costs of the Cost Centre.

• Click the Wizard button (6) to use the built-in cost wizard.

• Equipment: This window allows you to enter the equipment details of this Production Cost Centre. Enter a description or short name. If there is more than one machine for this Cost Centre, enter the description as the name or brand of the machines. Enter the total Value of this equipment. Select whether it is Industrial (this calculates the monthly cost of the equipment, assuming a five year lease at 15% per annum), Electronic (lease over three years) or Vehicle (lease over three years).

• Operators: Enter the salary amount and the number of Operator/s for the machine/s. If there is an Assistant, enter the salary value and the number of assistants. Select the Frequency that they are paid (Weekly/Monthly/Annually).

• Maintenance: Enter the maintenance Cost, and the Frequency that this cost is paid (Weekly/Monthly/Annually).

Click Finish to add these costs of Equipment, Operators and Maintenance to the Cost Centre.

5. Overhead Costing Models

When considering how to cover Overhead costs, there are two models that can be implemented.

The first approach - as above - splits the Overhead costs across the business's Cost Centres, and includes them in the hourly rate. This ensures that every estimate and quote covers a portion of your Overhead expenses.

Alternatively, Overheads can be excluded in the hourly rate and added as an Adjustment or markup in the Cost Centre module, or in the Estimating module.

6. Calculating Hourly Rate

This is an example of how QuickEasy calculates Hourly Rates

1. Overheads = Sum of all admin/non-production/indirect costs

   • Overheads = 50 000 p/m

2. Setup individual Cost Centres - A cost centre mainly has three costs, eg. Equipment, Labour (direct labour) and maintenence

   • When setting up a cost centre, QuickEasy uses a built-in repayment calculator but is fixed to calculating repayments over five years at fifteen percent for large equipment and three years at fifteen percent for electronic and vehicles. However, the monthly cost can be setup manually.

   • We also require the user to input the extended production hours and weeks. Many misunderstand this as it is not the total working hours but the expected hours you will bill. For a press, we normally set the hours per week to 30 and weeks per annum to 48.

   • In the long run,we can then compare the time and cost actually invoiced to these figures, which gives the user an indication of which machines are recovering, and which are not.

   • To each production cost centre, a portion of the admin costs is allocated. The admin cost is allocated based on the value of the cost centre.

   • The total monthly cost (Equipment, Labour, Maintenance + Overhead) is divided into the productio hours to get an hourly rate.

3. Cost Centre A

   • Production (hrs/week):30

   • Production (weeks/year):30

   • Equipment Monthly Repayment: R5 000 p/m

   • Labour: Minder + Assistant: R9 000 p/m

   • Maintenance: R1 000 p/m

   • Total: R15 000

   • Percentage of total production costs = 37.5% (Total Production = Cost Centre A + Cost Centre B) 37.5% of Overheads = R18 750

   • Total Monthly Cost for Cost Centre A = R33 750

   • Hourly Rate = Total Monthly * 12 months / Productive Weeks / Productive Hours

   • Rate = R18 750 * 12 / 48 / 30 = R156.25

4. Cost Centre B

   • Production (hrs/week):35

   • Production (weeks/year):48

   • Equipment Monthly Repayment: R10 000 p/m

   • Labour: Minder + Assistants: R14 000 p/m

   • Maintenance: R1 000 p/m

   • Total: R25 000

   • Percentage of total production costs = 62.5% (Total Production = Cost Centre A + Cost Centre B) 62.5% of Overheads = R31 250

   • Total Monthly Cost for Cost Centre A = R56 250

   • Hourly Rate = Total Monthly * 12 months / Productive Weeks / Productive Hours

   • Rate = R56 250 * 12 / 48 / 35 = R401.79