Managerial Accounting Presentation, v.3

20151951

WELCOME TO THE GRIND!

Grinding is an abrasive machining process that uses a grinding wheel as the cutting tool

Grind is a manufacturing process in creating a airframe fastener at AIC.

Grinding Example

Earned Standard Hours or (ESH): Number of hours a qualified operator would take in completing a specific job under normal conditions.

ESH = Setup time + Runtime + (Total pieces/ pieces per hour)

Daily Flex Metric:Based on Activity Based Budgeting or ABB

Throughput : measurement of how many $ per job are process in a given amount of time for each manufacturing operation

AIC Terminology

Issue for the Grind Department in Q4:

Reduce variable cost per earned standard hours from $56.66 to $48.46

Increase throughput from $70M to $75M

The Managerial Accounting Problem

Q3’s variable cost drivers

Total Labor Hours Unplanned OSP (outside processing)

GRIND DEPT FY15-Q3Cost Drivers CostTotal Labor $ 2,160.144.81

Supplies $ 134,049.84Tooling $ 314,459.08Utilities $ 97,669.41Other $ 80,479.02

Unplanned OSP $

1,619,966.57

COST DRIVERS

Math: Total Labor Hours and Unplanned OSP / ESH (for each cost driver)Decision: Manufacture parts in-house

GRIND DEPT FY15-Q3In-House ESH 65,905

OSP ESH 11,868Total ESH 77,773

Q3 COST PER ESH ANALYSIS: OSP vs. MAKEOSP/ESH $1,619,967/11,8

68$136.50

Make/ESH $2,160.145/65,905

$32.78

Delta - $103.72

MAKE or BUY DECISION MAKING

Identify if the Grind Department is subject to capacity constraints

Determination made that Grind department was operating under capacity by 25%

Increase in Sales led to increase in Q4 goal

Increase capacity by 17% to hit Q4 goal

DESCRIPTION VALUE ($)Inventory ($) 3,795,000

Inventory (job) 225Avg. ($) / (job) 16.86

Total jobs to OSP 856Q3 Total Tput $ 70,000,000Q4 Total Tput $

Goal75,000,000

CAPACITY UTILIZATION

The Grind department implemented actions such as:Increased shift hoursIncreased weekend scheduleAdded additional temporary operatorsThe action to increase labor hours is reflected in the metric below

Description Q3 Q4 Diff. Q3 to Q4Labor - Reg $ 1,358,439 1,449,098 90,659.22Labor - O.T. $ 239,046 263,829 24,782.58

Fringe $ 458,020 575,472 117,452.46Temp Labor $ 104,640 149,956 45,315.81Total Labor $ 2,160,145 2,438,355 278,210.07Labor $ / ESH 27.77 31.12 3.34

Direct Labor Increase

Decision Making Process ResultsDescription Actual Budget Variance

Q3 Total ESH 77,773 76,193 1,580Q3 Total Labor $ 2,138,281 2,297,633 159,352Q3 Total OSP $ 1,619,967 625,064 (994,902)Q3 Total VC $ 4,403,961 3,464,819 (939,142)Q3 VC/ESH $ 56.63 44.55 (12.08)Q4 Total ESH 78,357 77,471 885

Q4 Total Labor $ 2,438,355 2,313,366 (124,989)Q4 Total OSP $ 640,487 960,019 319,532Q4 Total VC $ 3,568,315 3,810,884 242,569Q4 VC/ESH $ 45.54 48.64 3.10

Q3: Hit tput of $70M but

missed VC/ESH budget

Q3: Hit tput of $72M & reduce VC/ESH