Financial Forecasts

makeandcreate

Hi guys - I am trying to formulate the financial forecasts for my business plan and I'm at a loss at to exactly were to put my electricity costs.
I am casting and firing ceramic bisque - so electricity will be a major cost in my cost of production.
Would it be considered in my Direct Cost of Sales - as I cannot produce the bisque without the electricity or does it remain an overhead?
My concern is my production costs will look very low if it's an overhead and make it look like there's a massive cost to sale price ratio. But then electricity as a category within Direct Cost of Sales doesn't seem to read right either.
TIA

YellowSheep

Hi OP. I would put your major costs into the cost of sales, as you need to figure out at one stage what a piece you produce is costing. Also I Would consider the labour aspect as well specially if you work on your own. Your accountant on a later stage will prepare a proper p&l. Regards Oliver

dbran

Hi

The simple rule of thumb is that if the cost varies with the level of output then it is a direct cost and thus part of your cost of sales.

If it remains essentially static over the level of output then is is an overhead and should go into admin expenses.

Best of luck with it.

dbran

makeandcreate

Thanks - it's definitely a cost of sale then.
D Bran - I take it I then split my electricity consumption into two portions - one as overheads for heat/light, sockets etc and then the remainder as firing costs (I'll just track number of firings multiplied by average cost per firing).

dbran

Thats it!!