The Definitive Guide to Business Finance: What smart managers do with the numbers, Second Edition

Where the money goes

The previous chapter examined spending on fixed assets. Now I want to talk about how you analyse all other expenditure and how you analyse, interpret, project and manage costs in general.

Seven ways of looking at costs

1. Production, trading, operating.

2. Direct, indirect.

3. Capital, current.

4. By category of product or service.

5. Geographic – by territory or region.

6. Functional – R & D, production, sales, etc.

7. Employee, non-employee.

Costs in the financials

There are many ways of categorizing spending; but, for basic analysis, approvals, and reporting, beanies carve up costs as follows:

1. Production costs (cost of sales) – current spending directly associated with sales, such as the acquisition of raw materials and the costs of production. ...