11 managerial account - cost control dr. martin taylor team 7 (boeshart/sharipova/alexander/spencer)...
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Managerial Account - Cost ControlDr. Martin Taylor
Team 7 (Boeshart/Sharipova/Alexander/Spencer)
February 3, 2014
University of TexasAt Arlington
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Agenda• Cost Control• Company Overview• Accounting Measure• H9200-XXX Oil Pressure Indicator
– Why does this indicator cost $11,940.28?
• H9900A-XXX Fuel Flow Indicator– How we reduced our costs to $3,279.99
• Conclusion
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Cost Control
• Primary purpose is to influence the factors that create cost and to control those costs.
• Starts by the business identifying what their costs are and evaluating if those costs are reasonable and affordable.
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Included in Cost Control
• Influencing factors that create changes to cost baseline
• Ensuring that requested changes are agreed upon in different company segments
• Managing actual changes when they occur to ensure a positive outcome
• Assuring that potential cost overruns do not exceed total funding for the project
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Included in Cost Control (Cont.)
• Monitoring cost performance to detect and understand variances from the cost baseline
• Recording all appropriate changes accurately against the cost baseline
• Preventing incorrect, inappropriate, or unapproved changes from being included in the reported cost or resource usage
• Informing appropriate stakeholders of approved changes• Acting to bring expected cost overruns within acceptable
limits and to decrease cost.
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Howell Instruments, Inc.
• Privately held small business founded in 1951• Fort Worth, TX HQ’s with 117,000 SF engineering,
manufacturing & production facilities• Aerospace electronics expertise: cockpit instrumentation,
engine health monitoring, jet engine test equipment & data acquisition systems
Engineering
Manufacturing
Quality Control
Fabrication
Field Services
Sales
Administration
Maintenance
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Howell Products
Engine Testers
Monitors
Indicators
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Manufacturing Overhead
Solder Reflow Oven
X-ray Machine
Component Storage
HALT/HAS
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Manufacturing Overhead
CNC FabricationCNC Lathe
Laser Engraver Injection Molding Machine
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Manufacturing Overhead
Machine ShopMetal Fabrication
PCB DEK Solder Screen Printer
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Selling, General & Administrative
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Standard Costs
Material Costs Labor Costs Overhead Costs
• Howell Instruments utilizes a Standard Cost accounting method, which is a predetermined cost for materials and for labor during normal operations
ResistorsCapacitors
PCB’sWire
And other direct materials
InspectorsAssemblersMachinists
PaintersTechnicians
BuildingEquipment
UtilitiesProd. SalariesMaintenance
SG&ACertification Costs
Engineering
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Accounting Measure
Equation Multiplier Activity Base
MOH Rate** 650% Labor Cost
SG&A Rate** 142% Manufacturing Cost
Markup Rate 15%
Direct Labor Rate $20
** Fixed Cost NOT Controllable by Managers
PMOH = Predicted Manufacturing Overhead PSG&A = Predicted Selling, General and Administrative
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H9200-XXX Indicator
• 2000 Technology• High Cost of Production
• Time 15.19 hours• Material $2008
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H9200-XXX Indicator
Direct Material $2,008.00Direct Labor Hours 15.19Labor Cost $20 303.80Mfg OH 650% 1,974.70Total Mfg Costs 4,286.50SG&A 142% 6,096.36Total Costs 10,382.86Markup 15% 1,557.43
Sales Price $11,940.28
Fixed Rates not controllable by
Managers
Time and Materials is controllable by
Managers
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H9900A-XXX
• 2012 Technology• Low Cost of Production
• Time 5.35 hours• Material $375
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H9900A-XXX
Direct Material $375.00Labor Hours 5.35Labor Cost $20.00 107.00Mfg OH 650% 695.50
Total Mfg Costs 1,177.50SG&A 142% 1,674.67Total Costs 2,852.17Markup 15% 427.83
Sales Price $3,279.99
Reduce Direct Labor Hours and Materials
Reduces Sales Price$8660.29 Savings!
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Pri
ce
Quantity Demanded
Conclusion
• Operationally we cannot control MOH and SG&A
• We manage the costs that we can control– Direct Labor Hours– Direct Materials
• Expansion into new Markets