How to reclassify the income statement

Method / Finance and Investing

How to reclassify the income statement
Lisena Giordano , Business Consultant, Italy

New method of reclassification.

How to reclassify the income statement.

In accounting, obliged to Direct Costing, you blame only the variable costs related to the amount billed to the customer of the products or services sold.

Before you start controlling costs, according to the Direct Costing, we reclassify the income statement, to assess the contribution margin (Contribution margin) of the company, which is the basis for our future plans and forecasts.

The contribution margin is obtained by subtracting from revenue the variable costs directly attributable to the customer on the invoice.

It serves to cover all remaining fixed costs and make a useful enterprise.

It is of crucial importance that these brief details, to be known by the owner, to become independent in the decisions.

This without detracting from the accountant or the trade association to which we turn to tax problems or union.

Reclassify the income statement

Paper and pencil and begin to write all the expenses that we will face in the short and long term, starting from those suggested by the tax accountant, to those suggested by the trade association.

Add leases, contracts of users, internet, office supplies, furniture, and what is to be spent to open the door to our future company without being able to start producing anything.

From the project we have in mind, lay the path to begin production, activity or service, what people I need to start?,
We start from the top, managing director, production manager.

Spread the organization of our company with people who cover roles and those roles, then, machinery, equipment, consumables, small parts, tools, and the manner of purchase.

So prepare our income by putting all the items that come to mind, always ready to add some that surely we will be forgotten.

After adding a 10% contingency as a cover or forgetfulness.

For multi purchases, enter that in the income statement only the part pertaining to the year concerned.

Determine which is the value of production, costs and revenues expected.

The value of the cost of the hours you worked in the company, which will be comparable to the total hourly employee who performs the duties of your own.

The reclassified according to the income statement, the instructions in the next chapter and we will try to answer the question: can we carry out the project?

With such risks?.

At the end, a check of the accountant is a must at this point.

We will now do everything and to realize the counts back to see if what we have written corresponds to reality and if we are able to cover the expenses, if the project is feasible and with what risks.

With the right information can make it ...

How to reclassify the income statement.

Breakdown of costs

We divide the costs into three categories;

Variable costs, costs that vary with production and invoiced.

Specific Fixed Costs, costs used for a specific work, are not affected by the increase in production and not invoiced, it is useful to distinguish if there are more production lines.

Fixed costs, costs that are not influenced by the increase in production and no turnovers.

Variable costs


Insert in the variable costs definitely raw materials, also called indirect materials, ancillary material, consumable supplies, raw materials.

The materials we use for the realization of our product or service, defendants in contract, considered in the budget and billed to the customer are condiderati variable costs.

Labor Processing

Direct labor, manufacturing, personal service and executive duties.

Indirect labor, support staff or control.

The salary will be calculated by adding all the items pertaining to the employee.

Will be virtually omni including all costs such as cost per hour, holidays, severance pay Christmas bonus, permits, insurance, special superminimum, illness etc. ..

Costs of preparation machine or start-up

Cost of personnel and material costs to bring the car under production conditions.

The hours and the materials we use to prepare the machine or start-up, charged in the contract, considered in the budget and billed to the customer directly or fixed costs will condiderati Variables ..

Otherwise, if not chargeable to the customer, should be considered fixed costs.

External work.
Exceptionally cost outsourced company

As you consider outsourcing the work to be supported on the outside, you want plants to saturation, either by working inside it is not possible to make.

The outsourcing contract entered into, considered in the budget, invoiced to the customer directly or flat rate, costs will condiderate variables.

External costs

Off-farm costs, which the company claims for the customer

Expenses not incurred by domestic production, allocated on the contract, considered in the estimate, billed to the customer directly or flat, are condiderati variable costs.

Example: Transport, shipping costs, fees collection, specific advice

How to reclassify the income statement.

Fixed costs specific
Exceptional costs incurred in the production of individual product, not invoiced.

The specific fixed costs are considered when there are multiple production lines and are quite distinct in the reclassification of the income statement.

The specific fixed costs, fixed costs must always be considered as covered by the First getting the contrast medium contrast medium II to cover the fixed costs.

Cost of special equipment, advertising, rent, lease.

The exceptionally hours incurred to produce that product or service and the materials used for the extraordinary realization of that product or service, not defendants in order, are not considered in the budget and not billed to the customer will be considered specific fixed costs.

Fixed Costs

Administrative costs:

Clerical staff, administrative staff, accounting staff, design engineers
Executives, managing director, production manager, foremen, technical employees.

The salary will be calculated by adding all the items pertaining to the employee.

Will be virtually omni including all costs such as cost per hour, holidays, severance pay Christmas bonus, permits, insurance, special superminimum, illness etc. ..

Other costs to consider Fixed

Compensation administrator, owner, partners, expenses, discounts, interest expense.

Costs of legal, tax.
Fuel costs, heating, electricity, motive power.
Maintenance, repairs, ordinary and extraordinary technical assets.
Tools and equipment costs, consumables.
Stationery expenses, office, records, forms, printing, postage, telephone, internet, furniture, office machines.
Administrative costs, taxes, costs of senior management, token presence, cost auditors, president, directors.
Insurance, leases, rents, depreciation and amortization.
Staff training courses.
Warehousing, Shipping, Transportation, Delivery, Commissions, Billing, Collection, Advertising.

Anything that does not vary with changes in production, is used in order to produce a single specification, not considered in the budget, not billed to the customer, will be considered a fixed cost.

Now that we have ceased to share the cost, we add those variables to each other and each other fixed ones, write them in the table below, as an example, together with the expected turnover, and we will get, by subtracting variable costs from revenue, our margin Contribution

Example of a reclassification of income forecast by Contribution margin 40%

Expected turnover 1600000 100,00%
Variable costs provided 960 60,00%
Contribution margin expected 640 40,00%
Fixed costs provided 50 3,00%
EBIT expected 590000 37,00%

Obviously, these data will be verified, then accepted as real as possible.

The specific fixed cost, must be calculated with the Direct Costing Evolved, when there are multiple production lines, to know what the value of the contrast medium II. The value of the first contrast agent could hide a great deception, does not cover fixed costs.

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