Cost Calculation

Tailor-made working companies should prepare a cost calculation for each quotation submitted to their customers.

In this calculation, they basically try to achieve below formula :

Expenses + Profit = Sales Price

The content of cost calculation generally includes the following items :

a) Quotation number

b) Quotation date

c) Expiry date of quotation

d) Order number

e) Customer data

f) End user

Contractor companies take the projects and distribute pieces of this project to manufacturers. If X contractor company performs the installation of a process in Y cement factory, Y is the end user.

g) Project name

h) Production start date

i) Direct material cost

This is purchasing price of the raw or semifinished materials which will be used as parts of finished product.

j) Labor cost

This can be calculated based on design and production hours.

k) Special costs

This should include all other directly order related costs such as freight out, transport insurance, commission to representatives , financing (costs for bid bonds, performance bonds), provisions for risks (political, country, currency, warranty) and other direct costs such as documentation, special tools and moulds.

l) General expenses

Administration and sales overheads, rent, electricity,.. etc.

m) Date of invoicing

This date could be used to calculate the financial cost for trade receivables and the financial income for advances as well as the receivables/revenues (%).

n) Outside erection, commissioning and start up

This shall include costs for installation order such as:

- All personnel expenses of field personnel,

- Material consumed on site,

- All expenses of other on site activities such as start up, commissioning, training of local personnel,.. etc.

o) Quoted currency

p) Currency risk coverage

It is taken in to consideration if there is a currency difference between invoicing and expenses.

q) Material price increase

This is the estimated monthly price increase of the material.

r) Sales price in quoted currency

s) Advance from customers

Interest cost of bid bonds should also be considered

t) Revenues

Date and amount of invoices which will be issued.

u) Full costs

This is the sum of Production costs, Sales and administration overheads, Financial cost trade receivables and Financial income advances

v) Gross margin (%)

= ( Sales price – Production cost ) / Sales price

w) Net margin (%)

= ( Sales price – Full costs ) / Sales price