Full Costing

There’s business savvy…and then there’s business genius. And our little company, Motor Garden, LLC, is definitely in the “business genius” category.

We spend our days in the she-shed in the backyard refurbishing and refinishing old car parts, and then we weld ‘em to stakes and sell ‘em as yard art. They’re a huge hit, and we’re making a ton of money. (Ever seen a bedazzled radiator fan clutch on a stick, peeking out from between some rosebushes in spring? It’s a thing of beauty.)

Anyway, we’re doing so well that we’re considering expanding our business. But before we do, we want to get a handle on our actual operating costs, so we bring in an accountant. He decides to evaluate our finances based on a full costing approach, which basically means that he wants to look at how much it costs to produce one of our amazing products from start to finish. And we’re not just talking about the cost of the actual materials here, like the radiator fan clutch and the rhinestones. We’re talking about all of our direct costs, like the she-shed’s electricity bill, the gas money we spend driving around retrieving car parts, and even the salary we pay ourselves out of Motor Garden’s profits. Everything that goes into producing and selling our unique creations is considered an expense in our income statements.

The full costing method isn’t the only approach we can use to figure out our costs. But for businesses that have a lot of manufacturing and production costs, like ours, it can be a really helpful tool in our heavily bedazzled financial management toolkit.