How Top Managers Use Indirect Cost Control Strategies
In addition to the direct costs of inventory and shipping, effective managers also need to understand the indirect costs of production or service delivery. Indirect material and equipment costs are things related to the production and supply of your products that are not directly assignable to individual items.
A simple example of an indirect variable cost is printing costs. As you produce more items in your factory you may need to print more manuals or instruction sheets. Ink, toner and the printers themselves (since they wear out, and the number of them that you need depends on how much you print) are all variable costs. Since it's difficult to tie the cost of a printer wear or some ink to a single production unit we call them indirect variable costs.
Where direct materials present you with something you can control on a weekly or monthly basis, indirect material and equipment represent slightly longer term items. You may not be able to get your ink any cheaper, but you may be able to switch to a laser printer and justify the higher printer cost with the lower cost and faster printing of toner based laser printing.
Gas, electricity, machinery, tools, paper, and host of other items can all be classified as indirect material & equipment, and represent opportunities to optimize your business spending. These costs vary with the amount of work you do, but you can't easily assign their costs to individual orders or projects.
Indirect material and equipment are great things for new managers to practice spending control on as they are generally lower risk than direct materials, don't require as swift action, but still show you are taking initiative in areas that matters to the bottom line.
So when you set out looking for ways to cut the cost of providing your products and services, take the time to look past the parts and pieces of what you provide to the equipment and resources used to create them. These components all contribute indirectly to your per piece costs, and represent opportunities to save money on the things you do repeatedly.
As a manager it is your responsibility to understand the variable costs of your department, and take action to manage them. Managers that proactively take steps to control variable costs are recognized and appreciated as people that understand what it takes to make a business successful.
About the Author: Daryl Cowie has shared management tips with 1000s of people in over 30 countries around the world. His mission is to help you and your company turn business opportunities into business realities. Sign up for his free business management home study course at http://FreeManagementTips.com
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Print Article | Download PDF | 46 views | Apr 25 2008
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