Production cost is the company’s cost needed to produce goods and services to be sold. It is the required cost to create income. And this is usually the biggest expenditure of the business. Brisbane bookkeeping rules include the following as examples of production costs – raw materials, depreciation of machineries used in production, plant utilities, and labor costs of production workers and their supervisors.
Not to be included in the costs of production schedule are delivery expense, advertisements, interest expense, and salaries and wages of sales and accounting staff. If the business is service oriented professional cost of services rendered are included in the production cost. Examples are salaries of waiters in a restaurant, bookkeepers in a bookkeeping firm, lawyers in a law firm, masseuses in a spa, and cleaners in a cleaning company.
Production cost is necessary to generate income. Thus, companies give priority to it in the budgeting. But, as it also takes the biggest chunk off the company expenses, efforts should be taken to control it.
Here are effective measures that can help you take control of your production costs;
- Set a budget. Setting a budget will give you a benchmark on your expenditures. However, the budget should be based on an actual production adjusted to possible improvements. Setting a budget too low might adversely affect the quality of your products.
- Identify the most efficient production layout. A topsy-turvy factory or production plant is counter-productive. This also applies to shops, offices, and stores. Come up with a plan that will require minimal movement of people from one place to another. Create a schedule that will best accommodate most people concerned.
- Invest on equipment that enhance productivity. Brisbane bookkeepers see the benefit of investing on equipment that boost production efficiency. The investment might need a major cash layout or loan, but the improved productivity effect it has on the company can increase income and effectively pay for itself.
- Periodically review your suppliers. Always be on the lookout for better deals. You can go complacent and develop a relationship with your present suppliers, but that does not mean that you stop looking for better deals for the company. Do not go into long term contracts with any suppliers. This prevent you from considering other offers and negotiating for better terms. Costs and economies change, stay flexible.
- Take advantage of the technology. Make your company technologically empowered. Technological advancements might look scary and risky to some companies who favor the old fashioned way of doing things. But, these improvements are really better ways and options of doing it. Take the initiative to learn and embrace change. The internet has made it possible for companies to work in paperless environments, communicate instantly, and by outsourcing processes, save on staffing and production costs.
- Manage wastage. Set an acceptable production waste rate. Review wastes and identify which part of the production contributes to wastage. Look closer into the work pattern and try to come up of ways to reduce or eliminate wasting. If all else comes up with no improvement, you can always devise of ways to re-use or recycle wastes.
Remember that production costs generate business and income. Cost cutting is important, but do so with care. Do not skimp of expenses that will adversely affect your services and products’ quality. Involve your employees and let them know of your company’s goals. And keep a good record of your production. Someone from the outside can review it for you and give another perspective, without bias affecting his or her opinions. An industry expert, your accountant, or your Brisbane bookkeeper can help you review the efficiency of your production processes and develop ways to improve it.