The first article in this series about job costing for your arts and crafts business is an introduction to job costing. In a nutshell, job costing tracks all expenses you incur that directly or indirectly relate to the specific arts or crafts product. The second article in this series is about understanding cost behavior , which is the manner in which your arts and crafts business costs go up or down in reaction to changes in your business activity.
This article discusses arts and crafts variable costs, which are costs that go up and down depending on how much arts and crafts inventory or products you sell. Tying this cost into a practical personal example, if you are having a dinner party, your cost for food and beverages will change depending on how many people you invite to your event.
Understanding Variable Cost for Your Arts and Crafts Business
Variable costs change in total depending on sales volume. Sales go up; variable costs go up too - and vice versa. Wondering what types of costs you classify as variable? Depending on the type of arts and crafts business you own and what products you handcraft, you'll have quite an array of different types of variable costs.
Here are a few common examples:
Handcrafting labor wages: These are payroll dollars directly tied to making your arts or crafts products. It only includes wages paid to your artisans making the goods your company sells. So office workers answering your phones or running payroll are not included in this category.
If you are a sole proprietor, your draw isn't included in this category. If you are an officer in your arts and crafts corporation, your payroll could be included here or in officer wages.
Raw materials: You include in this category any goods or supplies you use to handcraft your arts and crafts items. It doesn't include any machinery or tools you have to use to form the raw materials into the arts and crafts items.
If you work in the fashion crafts and make clothing, your raw materials can include fabric, thread and buttons - plus any other raw materials you use.
Shipping costs: This includes freight-in which how much it costs when your vendors ship raw material orders to you. It also includes freight-out. This is your cost to ship your arts and crafts product to your customers.
Any arts or crafts business that sells online or to shops and galleries outside traveling distance will have freight-out expense. If you load your car up and personally deliver your products - that's not freight-out, it's a mileage expense. Shipping costs don't include your basic business postage expenses. These are a general and administative expense.
Warranty costs: Let's not forget those pesky costs we absorb after we sell our product to our customers when we offer some sort of assurance on the sale. This cost won't be applicate for many artists and crafts.
But let's say you wholesale a specific type of arts and crafts product with a motor and a retail shop customer returns the item to you to be fixed because it doesn't work right. Any costs you incur to repair the item are warranty costs.
Sales commissions: And finally, our hats off to those members of our company's work force who attend arts and crafts trade shops and market our products in other venues, advising shops and galleries about our products, making sales and providing us with a paycheck!
Sales commissions are an agreed amount, usually a percent of sales, that your company pays its sales staff when they write up an order. Just take a moment to consider each of these costs. The more items your company produces and sells the higher the cost will be for all of these.
In the next article in this series about job costing, I explain fixed costs, which unlike variable remain the same no matter what your sales volume is.