ABCs for Life

Hi, 

Today is either your favorite or least favorite newsletter to date. Today, we are talking about my favorite class from my MBA program: Cost Accounting. 

Cost accountants, to me, are the bad boys of the accounting world. They aren’t concerned with your tax return, their concern is all around do the core business offerings run efficiently. 

My favorite principle is the idea of Activity-Based Costing which in short is attributing every expense, indirect or direct, to the sale of one good or service. This would give you a general understanding of the gross profit for every sales cycle of your goods or services. 

In laymen’s terms, it gives you a clear picture of everything you have to give in order to get the desired outcome. 

Once you can understand everything that goes into the selling of one of your things, you can then create a picture of what it would take to sell 2,3,4 and so on. 

Here is an example: Basic Costing would be, I sell a widget for $100, the Cost of Goods is $25, Shipping is $10, and Marketing is $30. Therefore, I spend $65 to make $100.

The ABC method would try to pull every possible expense into the sale of that one widget, machine set up time, customer service time, shelf storage time, etc. 

To me, this is the most interesting thing in a business. If your business were a tree, this understanding would be one of the root systems. 

If you have been reading for awhile, you will know that I like to try to find tangential applications for theories or practices, and this one has a really beautiful one for life. 

I believe that you can only have one priority in life. In order to prop that priority up you will have to make decisions and sacrifices in a multitude of ways, but they all come back to serve that ultimate priority. 

For example, your family is your ultimate priority. 

What goes into that? Work, Health, Quality Time, Chores, Hard Conversations, Driving to Soccer Practice. The list is endless. 

When you are doing those things they are not the priority, they are the activities that need to happen in order to prioritize your priority. 

They are all the tasks that go into your desired goal: Keeping your family the priority. 

There are two mental frameworks that I use to help me get through hard moments: This is not forever and This is a part of it. 

This is a part of it means if you really want the thing you want, you have to do this hard thing in order to have it. 

The ABCs help remind me that these are just the activities required to get the desired outcome. 

Happy Sunday! 

Kyle