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Building Value Through Excellence in Cost
AccountingPresented by:Bart Bedard
OC IMA Dinner MeetingMarch 19, 2014
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Bart Bedard – Last 27 years in mid-level to senior
management accounting and finance positions at manufacturing companies
BS in Accounting from BYU, MBA from CSUF, CPA, CMA
About the speaker
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Profits
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Cost Accounting
• Standard Costing
• Discrete vs.
Process
• Job/ Project Costing
• Service vs. Mfg.
• Average Costing
• Actual Costing
• Labor
• Material
• Overhead
• Tracked• Not
Tracked
Vari
an
ces
Every company has their own way
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Survey
• How many of you work for a manufacturing or service company?
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Survey
Of those that work for a manufacturing or service company:
1.The cost & gross margins reported are excellent
2.The cost & gross margins reported are adequate but could be improved.
3.The cost & gross margins reported are inadequate and cannot be trusted.
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Bart’s Four Keys to Excellence in Cost Accounting
1.Understanding the Power
2.Right Staff3.Right Setup4.Variance Vigilance
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Understanding the Power (of accurate costing)
•Accurate quantities on hand
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Understanding the Power (of accurate costing)
•Accurate standard costs• Standard costs as close as possible to
actual
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Understanding the Power (of accurate costing)
• Accurate standard costs
•Benefits to Sales
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Understanding the Power (of accurate costing)
•Accurate standard costs• Benefits to Production
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Understanding the Power
Gross Margins improved 10% over 6 years
(i.e. millions of dollars a year in profit improvement)
Profits
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Right Staff
• Jim Collins author of Good to Great – “Get the right people on the bus”• Most important• Attitude & Aptitude**• Experience
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Right Setup
•Bills of Material & Routers•Overhead rates
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Right SetupBills of Material & Routers
Commitment & Dedication
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Right Setup Continued
Overheads
Allocations & Cost Pools
Allocated
Individual Department Direct rates
Part of General Mfg.
Overhead Rate
Part of SG&A rate
DirectMolding YESCNC Plastics YESCNC Metal YESCNC Swiss YESAutomation YESAssembly YES
IndirectMachining YES YESTooling YES YESQuality Control YES YESQuality Assurance YESDocument Control YESFacilities YES YESGeneral Manufacturing YESProduction Control YESInventory Control YES
SG&ACorporate YESFinance & Accounting YES YESHuman Resources YES YESInformation Technology YES YESSales & Marketing YESR&D YES
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Right Setup Continued
Any cost that can be reasonably allocated SHOULD BE allocated.
Allocate based on:1.Headcount2.Square feet occupied3.Number ERP software users4.Number of purchase orders
processed5.Etc.
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Right Setup Continued
Any cost that can be reasonably allocated SHOULD BE allocated.Costs that should be allocated to benefiting departments:• Payroll taxes, Vacation, Sick pay,
401k matching• Medical, Workers’ Comp. Liability
and other insurances• Rent, Utilities• Etc.
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EmployeeCNC
Swiss Maching Other TotalMary 20% 40% 40% 100%Joe 10% 80% 10% 100%Jane 15% 35% 50% 100%John 80% 15% 5% 100%Larry 20% 20% 60% 100%Gary 30% 30% 40% 100%Parker 40% 40% 20% 100%
Average 31% 37% 32% 100%
This example assumes all employees make about the same amount.
Tooling Department Allocation
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Total Overhead
after allocations Total Labor
Productive Labor
Percent Productive
Labor
Overhead less
Productive Labor
Direct Overhead
rate Direct
Molding 100,000 40,000 80% 32,000 68,000 213%CNC Plastics 150,000 60,000 85% 51,000 99,000 194%CNC Metal 200,000 80,000 78% 62,400 137,600 221%CNC Swiss 75,000 30,000 88% 26,400 48,600 184%Automation 300,000 120,000 75% 90,000 210,000 233%Assembly 225,000 150,000 82% 123,000 102,000 83%
Calculation of Direct Overhead Rates
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How often should standards be updated?
Given: Standard costs should be as close as possible to actuals.
• Annual?•Quarterly?•Monthly?
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Capitalizing Variances
Variances are capitalized equal to the amount of variances incurred over the time it takes to turn inventory 1 time. E.g. 30 days.
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Variance Vigilance
1.Errors2.Labor Efficiency3.Labor Absorption4.Material Usage5.Purchase Price Variances6.Overhead Absorption7.Follow up with Sales, Production
& Engineering
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Direct Departments
Total Overhead
after allocations Absorption
Over (under)
absorbed
% Over (under)
absorbed Molding 100,000 90,000 (10,000) -10%CNC Plastics 150,000 160,000 10,000 7%CNC Metal 200,000 225,000 25,000 13%CNC Swiss 75,000 100,000 25,000 33%Automation 300,000 120,000 (180,000) -60%Assembly 225,000 150,000 (75,000) -33%
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Profits
Thank you!