Knowing what your true hourly rate is, in order to cover your overheads and expenses, gives you a clear path to business control, growth and potential profit.

It all starts with your Cost Centres.

Aside from making up the basic framework and substance of a business, and being the basis for creating a profit, cost centres are what we use to determine hourly rate.

A Cost Centre is used to break-up the business into measurable portions in order to determine if that portion is profitable. A Cost Centre could be your design team, your delivery fleet, or your expensive machine that fills one third of your factory floor. The reason we break up a business into Cost Centres is to better identify and isolate variables to determine how efficient they are, so that we can make specific improvements that are not guesswork. This is less overwhelming than trying to improve efficiency as a blanket rule across the entire business.

The 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.
• Adding Production Cost Centres.
• Knowing the productivity within those Cost Centres.

Discover Cost Centres

• Cost Centres Data Grid
• Cost Centre Setup
• Creating an Overhead Cost Centre
• Creating a Production Cost Centre
• Calculating Hourly Rate - Example

1. View - To view all entered Cost Centres.
2. New - To create a new Cost Centre.
3. Edit - You can edit an existing Cost Centre by Right-clicking and selecting Edit, double-clicking or pressing Enter on a selected Cost Centre.

Cost Centre Setup

Navigation

Main menu > Setup > Cost Centres > New/Edit

1. Name - This is where the description of the Cost Centre is added. Keep it short - it is used throughout the application. A cost centre can be a machine, eg SM52, a service, eg gang stitching, or an overhead, which you will setup as an overhead cost centre (more below).
2. Type - This is to specify the type of Cost Centre and depends on where the Cost Centre will be used. You can choose from:
   • Delivery - This is to ensure delivery costs are factored into the hourly rate.
   • Finishing - This ensures Finishing services are included.
   • Material - This ensures Material Items are included.
   • Overhead - This ensures non-revenue-generating costs, such as admin, rent, etc, are factored.
   • Packaging - This ensures that any packaging costs are included.
   • Pre-Press - This ensures that service costs-per-hour before printing are included.
   • Printing - This ensures the costs of equipment, labour, and maintenance are factored in.
3. Production - The production check box is to differentiate the Cost Centre as either an Overhead Cost Centre (more below) or a Production Cost Centre (more below).
   • 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.
   • Branch - Here you can select the Branch where the Cost Centre is based. Cost Centres has a Branch filter available and the Overhead linked to a Branch is assigned only to Cost Centres which are linked to the same Branch. Cost Centres that are not linked to a Branch are grouped together.
4. 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.
5. Add - To add a cost to the Cost Centre. Cost Centres can be one machine, or multiple machines.
6. Wizard - Functionality is provided to calculate the equipment, labour and maintenance costs of the Cost Centre by using the Cost Centre Wizard.

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 average 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%.

9. Hourly rate Fix check box - Functionality is provided to override the calculated Hourly rate. 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.

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.

11. 12 Month History - 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 show you clearly if you need to adjust the Production values to reflect how long and often the Cost Centre is actually being used. 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.

Every business has two types of cost centres

A business has direct and indirect costs, and these require two different types of cost centres.

1. Overhead Cost Centre
2. Production Cost Centre

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.

Get Started

Here is a step by step guide on how to create an Overhead Cost Centre:

1. Click New in the Cost Centre module.
2. Type the name of the Cost Centre in the description field, in this case it will be Overheads.
3. Select the Overhead Cost Centre Type in the Type drop down list.
4. Deselect the Production check-box.
5. Click Add.
6. Enter the Cost description. You can enter the total monthly overhead amount under one entry OR add separate costs to make up the overhead value. See screenshots below:

7. Enter the total monthly amount.

8. Click Save to finish the Cost Centre.

Here is a short video on how to create an Overhead Cost Centre:

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.

Creating 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.

Get Started

Here is a step by step guide on how to create a Production Cost Centre:

1. Click New in the Cost Centre module.
2. Type the name of the Cost Centre in the description field. Keep this as short as possible, as it will be used elsewhere throughout QuickEasy BOS
3. Select the appropriate type from the Type drop down list. This depends on where the cost centre will be used, eg Printing for your printing production.
4. Keep the production check box checked to indicate that it is a production Cost Centre. Add the number Hours/Week and Weeks/Annum.
   • 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. Click Add.
6. Enter the Cost description.
7. Click Wizard and Complete the Equipment, Operators and Maintenance pop up menus. The Wizard will automatically work out the hourly rare for the Cost Centre.
8. Once the Wizard is completed it will automatically save the Cost Centre.

See image below for an example of a printing type Cost Centre:

Here is a short video on how to create a Production Cost Centre:

Productivity

Determining the hourly rate depends on the productivity within a Cost Centre. Knowing how many productive hours are available for work to go through that Cost Centre will help you determine what each hour should cost.

• Weeks per year: With 52 weeks in a year, not every week is productive for your staff members. There are two weeks of public holidays every year, and three weeks of annual leave. That leaves 47 productive weeks in a year.
• Hours per week: With 40 hours typically available per week, in reality most people are only productive 80% of the time. That leaves 32 productive hours per week.

To calculate the productive hours per month (which you will use to calculate hourly rate) take weeks per year, multiplied by hours per week, divided by 12. Or:

Hours per month = (weeks per year x hours per week) / 12

Note: Be attentive when it comes to your productivity calculation; not all cost centres are as productive as the next. If after a while you notice a cost centre only sees 20 hours of work a week for example, then the calculation will reflect a higher hourly rate. Initially you may have to do some thumb-sucking to start the ball rolling; feel free to use these values (above) for your baseline productive hours as a start. Alternatively, BOS shows you monthly Cost Centre recovery so that you can adjust productivity accordingly.

Calculating Hourly Rate - Example

To determine your hourly rate, total your monthly costs (equipment, maintenance, labour) and divide this by the productive hours of the cost centre, or:

Hourly rate = monthly cost / hours per month

1. Setup Overheads

This is the 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 maintenance

When setting up a cost centre, QuickEasy uses a built-in repayment calculator but is fixed to calculating repayments over five years at 15% for large equipment and three years at 15% 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 production hours to get an hourly rate.

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

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