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20.10 Luxembourg Craft/Artisan Business Costing

Luxembourg Craft and Artisan Sector​

Luxembourg has a vibrant craft and artisan sector, including:

  • Custom furniture makers
  • Artisan bakers and pastry chefs
  • Jewelry makers
  • Custom clothing and tailoring
  • Artisan food producers
  • Handcrafted products

Craft Business Characteristics​

Typical Features:

  • Each product is unique or customized
  • Small batch production
  • High skill requirements
  • Direct labor is significant
  • Materials vary by product
  • Overhead includes workshop costs

Example: Custom Furniture Maker​

Job #601: Custom Dining Table

Direct Materials:

  • Wood (oak): €800
  • Hardware (legs, screws): €150
  • Finish materials: €100
  • Total: €1,050

Direct Labor:

  • Master craftsman: 25 hours × €45/hour = €1,125
  • Apprentice: 15 hours × €20/hour = €300
  • Total: €1,425

Applied Overhead (40% of direct labor):

  • Workshop rent: €400
  • Equipment depreciation: €100
  • Utilities: €70
  • Total Applied: €570 (or 40% of €1,425)

Total Job Cost:

  • Direct materials: €1,050
  • Direct labor: €1,425
  • Applied overhead: €570
  • Total: €3,045

Pricing:

  • Job cost: €3,045
  • Desired profit margin: 40%
  • Selling price: €3,045 ÷ 0.60 = €5,075
  • Or: €3,045 × 1.40 = €4,263 (40% markup on cost)

Example: Artisan Bakery - Custom Cake​

Job #701: Custom Wedding Cake

Direct Materials:

  • Flour, sugar, eggs: €50
  • Specialty ingredients: €80
  • Decorations: €120
  • Packaging: €30
  • Total: €280

Direct Labor:

  • Master baker: 8 hours × €35/hour = €280
  • Decorator: 6 hours × €25/hour = €150
  • Total: €430

Applied Overhead (35% of direct labor):

  • Kitchen allocation: €150.50

Total Job Cost:

  • Direct materials: €280
  • Direct labor: €430
  • Applied overhead: €150.50
  • Total: €860.50

Example: Custom Jewelry​

Job #801: Custom Engagement Ring

Direct Materials:

  • Gold: €1,200
  • Diamond: €3,000
  • Setting materials: €100
  • Total: €4,300

Direct Labor:

  • Master jeweler: 12 hours × €60/hour = €720
  • Total: €720

Applied Overhead (30% of direct labor):

  • Workshop costs: €216

Total Job Cost:

  • Direct materials: €4,300
  • Direct labor: €720
  • Applied overhead: €216
  • Total: €5,236

Craft Business Overhead​

Typical Overhead Costs:

  • Workshop/studio rent
  • Equipment and tools depreciation
  • Utilities (electricity, water)
  • Insurance
  • Professional fees
  • Marketing
  • Materials storage

Allocation:

  • Often based on direct labor hours or cost
  • May use machine hours if equipment-intensive
  • Should reflect actual overhead usage

Pricing for Craft Businesses​

Considerations:

  • Job cost (materials + labor + overhead)
  • Desired profit margin
  • Market prices
  • Competitor pricing
  • Value to customer
  • Skill and expertise

Common Approaches:

  • Cost-plus pricing (cost + markup)
  • Value-based pricing
  • Market-based pricing
  • Combination approach

Luxembourg Compliance Note​

For Luxembourg craft/artisan businesses:

  • Job costing essential for pricing
  • Track costs accurately
  • Consider high material costs
  • Labor is often significant
  • Overhead includes workshop costs
  • Use appropriate PCN accounts
  • VAT applies to sales (usually 17%, some items 3% or 8%)
  • Maintain job cost records

Think It Through​

Why is job order costing particularly important for craft and artisan businesses? How does it help them price their unique products?