We use absorption costing to determine the hourly rate we charge our engineers out to customers however i was at a course run by our local enterprise agency a while back where it was suggested we use marginal costing as it is more accurate and relevant.
I am working through a few figures today but am struggling a bit with the following.
We have to decide what the truly variable costs are, i have taken these to be materials, engineers travelling costs however i am struggling to decide what proportion of the actual employment cost are variable.
At the course we were advised to decide which staff would we still employ even if no sales are made which would be the admin staff, sales staff and directors. The rest would be variable employment cost which would be the engineers.
Does this sound correct to you? I am thinking that when work goes quiet we still employ the engineers until the next job comes up, any down time is spend tidying stores, cleaning vans etc... only in extreme situations would they be sent home with no pay therefore would i class the engineers sent home as the variable cost.
