The Chinese Pension System
There has no doubt about the fact that the Chinese economy is one of the largest economies in the world today. Theoretically, China is the second-largest economy in the world. It is widely believed that the Chinese economy will surpass the American economy to become the largest in the world. However, many economists believe that […]
Venture Debt in Startup Funding
Whenever the subject of startup funding is mentioned, the audience automatically assumes that equity investments are being discussed. This is because it is the big equity deals that are mentioned in the newspapers which catch the attention of the world. However, equity funding is not the only way in which startup founders can raise capital. […]
Quick Ratio – Meaning, Formula and Assumptions
The quick ratio is a variation of the current ratio. However, a quick ratio is considered by many to be a more conservative estimate than the current ratio. This characteristic fetches it the nickname of being the “Acid test ratio”. The difference between the current ratio and the quick ratio is the fact that quick […]
The Strategic Financial Planning Process
The strategic financial planning process is different in the sense that it combines the functions of strategy formulation as well as financial planning. For many years, these two processes have been considered to be separate in most organizations around the world. Strategic financial planning merges these processes and created a hybrid approach. In a broad […]
Types of Investment Banks
The investment banking industry is often referred to as if it were homogenous. However, this is not true at all. There are many different types of investment banks around the world. These different investment banks can also be categorized in different ways. However, these banks are most often categorized by the types of financial products […]
The first four stages are done before the job is being performed. The final purpose of this is to give a quotation to the clients. The calculation is done based on very little information. However, it needs to be precise. Here is the procedure:
Stage 1: List the Cost ObjectsAt the first stage, organizations need to identify all the possible cost objects that will be affected by taking this job. The idea is to get as close as possible to the perfect estimate
Stage 2: Estimate The Direct Costs:At the second stage, cost objects are segregated into direct and indirect costs. Direct costs are easy to estimate. The company needs to be aware of the amount of material and labour that the job will consume. Once these facts are known, it is easy to determine the amount of direct costs that will go into a job. These estimates are very accurate and seldom need to be revised.
Stage 3: Use Pre-determined Overhead:In the third stage, companies estimate the amount of overheads that will be incurred in the particular job. This estimate is done based on the information that is empirical. This can be contrasted with the direct costs which are estimated based on prevailing market rates. Hence these overhead estimates are almost never accurate. They need to be adjusted at later stages. However, companies try to make the estimates as accurate as possible. This helps them in the next stage.
Stage 4: Give QuotationThe direct and indirect cost estimates are collated. Companies then bid for the job with their quotation. The costs need to be accurate to ensure that the contract is won and also that the company makes a decent profit out of doing so.
When the job is being performed, companies maintain job sheets. They track whether the actual material and labour used as per the quotation. If they are not as per the quotation, then it is an anomaly. Companies can easily trace out the cause. It is either incorrect implementation or incorrect estimation.
After the job is completed, companies check the actual overheads with the estimated overheads. They, then remove the effect of over and under applied overheads to arrive at the final cost of performing the job.
This is quite a lengthy procedure. However, it creates control within the organization and helps ensure that resources are not wasted.
Your email address will not be published. Required fields are marked *
