Topic: General Posts

Subject: Cost basis for Profitability by Product
Joseph Tarzia
Member: 2017
Posts:2
Submitted on 06-06-17 10:56 am
Message:

Hello - I am building a report that will present profitability by product and I need to build out the fully loaded cost per service employee, per hour.


Currently, I am taking each employees actual gross salary hourly rate, and adding in budgeted taxes and benefits to arrive at a fully burdened salary per hour.  I am adding to this a fixed amount of budgeted rent & occupancy costs for the month, by employee and budgeted T&E by month, by employee.


To those who have experience in developing hourly costs for project/product profitability reporting, does this sound correct?  If not, what would you propose in order to arrive at a fully loaded cost, per employee, per hour?


The service team already logs their time on a project and customer basis.


Thank you in advance for all of your suggestions and recommendations!


 

 
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Replies
Ricardo Ibaven
Member: 2017
Posts: 1

Subject: Re:Cost basis for Profitability by Product

Submitted on 06-06-17 5:41 pm.
Message:

Dear Joseph,


Nice meeting you.


Based on your message, I believe you have a pretty good idea on how to calculate it. Total salary + benefits + taxes + fixed costs (sometimes you add % of merit increase if you are analyzing future periods). There are 2 portions of the fully burden, variable and fixed; I noticed you are in Telecommunications service company, so I guess all related costs are considered fixed.


You mentioned you have a budget and based on that you will add the rest of the costs, it makes sense. If possible, I always use annual figures (or Year-to-date when it i actual analysis) to come up to a rate since monthly amounts might have tricky sometimes due to the seasonality or calendar days. Also, when you want to check your results, is easy to validate the rate by comparing it with your annual budget, for example:


Total calculated rate * total hours per employee * # of employees = This should be close to your budgeted expenses (Salaries and fixed costs).


Since you are doing a profitability analysis, this gives you an idea if the rate makes sense. Also, you might want to compare it with prior periods, other products or other locations/industry.


If you are required to send or present your results, it is always a good idea to make sure you show clearly the assumptions you made for this calculation, for example:


"The total hours assumed for this excercise are...."


"Salary, taxes, benefits and additional costs are based on budget 2017"


"Information is Year-To-Date May 20..."


"Allocations between products are based on..."


I hope this helps.


Regards!


Ricardo


 

 
Joseph Tarzia
Member: 2017
Posts: 2

Subject: Re:Cost basis for Profitability by Product

Submitted on 06-07-17 11:28 am.
Message:

Thank you Ricardo for your detailed reply and its a pleasure to meet you as well!


Happy to see that I'm on the right track and I'll confirm my fixed cost assumptions based on your suggestions.


I am actually in SAS, not telecommunications, so I'll have to see about changing that in my profile.


Hope you have a great weekend!

 
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