Cost Centres

Overview#

• Cost Centres in BOS are essential for 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 software 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 explains setting up Cost Centres, calculating Hourly Rates and incorporating best practices for optimal usage and cost management.

Calculations#

Step 1: Calculate the Direct Monthly Costs of the Production Cost Centres#

• Equipment Costs: Calculate the monthly cost of equipment which includes the acquisition or replacement and finance costs.
• Operator Costs: Calculate the staff remuneration of the managers and operators working in the Cost Centre.
• Maintenance Costs: Calculate the monthly maintenance and operational (consumables) costs.

Step 2: Calculate an Hourly Rate#

• Annual Cost: The monthly costs as calculated in Step 1 multiplied by the number of months that the machine is operational (e.g. Monthly Cost x 12).
• Weekly Cost: The annual cost divided by the number of weeks worked (e.g. 52 weeks less 3 weeks for the annual closure, less 2 weeks for public holidays = 47 weeks).
• Hourly Rate: The weekly cost divided by the number of hours worked per week, with an allowance for unproductive time (e.g. 40 hours per week at 80% efficiency = 32 hours).

Step 3: Include Overheads in the Hourly Rate (Optional)#

Direct Overhead Allocation 

• Add all the overheads (e.g. rent, utilities, office costs, admin salaries) and calculate an hourly rate as explained in Step 2.
• Ideal for the service industry where overheads and direct costs are clearly distinct.

Indirect Overhead Allocation

• Account for overheads by marking up products and services by a fixed amount or percentage.

How to Set Up Cost Centres in BOS Professional#

1. Navigate to Cost Centres (Main Menu > Setup > Cost Centres).
2. Click New (button).
3. Description = Enter a name for the Cost Centre.
4. Code = Enter a brief description for the Cost Centre.
5. Type = Select a type from the dropdown list. The available types are:
   • Delivery
   • Finishing
   • Material
   • Overhead
   • Packaging
   • Pre-press
   • Printing
6. Production = Check the checkbox if the Cost Centre is used in production.
7. Hours/Week = Enter the number of hours worked per week with an allowance for unproductive time (e.g. 40 hours per week at 80% efficiency = 32 hours).
8. Weeks/Annum = Enter the number of working weeks per annum (e.g. 52 weeks less 3 weeks business closes, less 2 weeks for public holidays = 47 weeks).
9. Click Save (button).
10. Click Cost Wizard (button) and complete the details as follows:
    1. Cost of acquiring machinery:
       1. Description = Name of the machine.
       2. Value = The cost price of a new machine or the price you paid for the machine.
       3. Term (Years) = The number of years over which the machine is paid off.
       4. Interest Rate / Year = Enter the interest rate charged to finance the machine.
       5. Click Next (button).
    2. Wages costs:
       1. Check the radio button next to Weekly, Monthly or Annually.
       2. Operator/s = Enter the wages for the period matching the radio button in the first block and the number of operators in the second block.
       3. Assistant/s = Enter the wages for the period matching the radio button the first block and the number of assistants in the second block.
       4. Click Next (button).
    3. Maintenance:
       1. Check the radio button next to Weekly, Monthly or Annually.
       2. Cost = Enter the maintenance cost for the period matching the radio button.
       3. Click Finish (button).
11. Click Add Cost (button) if you want to include additional costs (e.g. specialised insurance). Complete the fields as follows:
    1. Description = Describe the costs.
    2. Type = Select one of these options from the dropdown list:
       • Equipment
       • Labour
       • Maintenance
       • Other
    3. Complete one of these columns Weekly, Monthly or Annual.
       • Note: You can complete more than one column if applicable. The costs are added (e.g. the annual cost divided by 12 is added to the monthly cost).
12. On the Totals section, complete these fields:
    1. Adjustment = Enter the amount to add to the hourly rate.
    2. Click Save (button) to add the amount to the hourly rate.
    3. Fix = Check the checkbox to fix the price which delinks it from the calculations and allocates a fixed price to the Cost Centre.
       • Note: There are two Fix checkboxes. The first fixes the Overheads so they are no longer updated. The second next to the Hourly rate, fixes the hourly rate and allows it to be overtyped.
13. Click Save (button) if it is not greyed out.

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 Professional tracks the usage of Cost Centres over time, allowing you to validate initial assumptions and adjust productivity settings, as necessary.
• Hourly Rates vary significantly depending on whether Cost Centres operate in 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.