Importance of Recording Costs      


Overview

This topic  outlines why it is essential that all chargeable items are fully and accurately  recorded.

 

Commercial Landscape and Costs

TOT Shirts Limited exists in a highly competitive sector characterised by fast-turnaround, high volume, cost sensitive market participants.

In order to remain competitive, and maximize profitability, it is essential that we not only cover our costs but exceed them.

 It is thus a fundamental obligation that, for every job, we accurately capture and record, and are therefore able to invoice our clients for the costs incurred whilst undertaking the work necessary to process their orders.

 

Chargeable Costs

Costs that should be levied onto clients in this manner are termed "chargeable costs" in this topic.

Additionally, to mitigate potential client invoice disputes, it is essential that chargeable costs are communicated to clients as soon as they are known, re-communicated should they change, and moreover that client approval is sought and obtained.

 

It is critical that all Managers fully appreciate: -

 

The Dynamic Nature of costs

In a fast turnaround business such as ours, chargeable costs, may well change as the dynamic of the job order changes.

For example:-

Perhaps the one thing that can be safely assumed is that chargeable costs, even if thought to be known at the outset of a client order, can and most likely will change as the job progresses.

 

Fixed Costs and Variable costs

In simplistic terms, there are two types of costs that customers will encounter:-

  1. Costs where customers know what they are getting
    For certain customers / order types there is a fixed cost for certain processes.
    Alternatively, the customer may have approached and requested a fixed quotation.

  2. Costs that are not definitively knowable in advance.
    As outlined in the initial paragraph ArtWork origination and Fulfilment costs are not totally knowable in advance due to the number of variables involved, and the dynamic nature of the activities associated with them.

Responsibilities of All Managers

Given the above, it is essential that when any quotations are provided to clients for proposed work that they contain suitable disclaimers stating that "charges are subject to change" and that "client instructions for TOT Shirts Ltd to proceed is taken as their acceptance of this".

 

It is a fundamental responsibility for managers at TOT Shirts Limited to ensure that all "chargeable costs" incurred in their departments for the processing of a client order are:-

a.       Communicated to, and agreed by, the customer.

b.       Approved by the client, and client approval recorded.

c.       Correctly and consistently recorded on the corresponding job order / fulfilment.

Furthermore, in situations where there are additional costs in excess of those the client may have been informed of at the outset of a job order, it is the responsibility of the manager concerned that the client is informed of these, and that their approval is sought and recorded before the work commences to ensure that there are no disputes when the client is invoiced.

Sources of Chargeable Items

Invoicing at TOT is generally made up of all or some of the following components:-

There can be other incidental costs such as storage / handling and services that are chargeable