# Thread: Where is my problem?

1. ## Where is my problem?

Here is the situation...

I have a cost centre which is losing money hand over fist. In comparison;

Labour as % of revenue: 20% higher than other cost centres
Labour as % of total direct costs: comparable to other cost centres
Other direct costs as % of revenue: comparable to other cost centres
Other direct costs as % of total direct costs: comparable to other cost centres  Reply With Quote

2. ## Where is my problem?

Where exactly is my problem? Spending too much on labour? Rates not high enough?

Curious to see how many different opinions I get on this!  Reply With Quote

3. ## Where is my problem?

Nobody knows?  Reply With Quote

4. ## Where is my problem?

Hello Harry,

I'm hoping one of the knowledgeable business owners can help you with this question. I for one am not qualified.

I appreciate you checking back with us though.

David  Reply With Quote

5. ## Where is my problem?

There may be some missing info. If the following is true...

• The only variables involved at each centre are Revenue, Labor, and Other Direct Costs
• Total Direct Costs = Labor + Other Direct Costs

...then the named conditions are contradictory.

Let's call Revenue, Labor, and Other Direct Costs R, L, and X, respectively. Total Direct Costs is then L + X. We'll use a prime mark (') to denote the variables associated with the "losing" cost centre, whereas variables without the prime mark refer to the other centres in general.

The second condition in the list is L' / (L' + X') = L / (L + X).

The third condition is that X' / R' = X / R.

With a few algebraic steps, these two conditions together imply that L' / R' = L / R, contradicting the first condition that the Labor / Rev ratio is higher in the one centre than in the others.  Reply With Quote

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