Editors Note - Learning Your ABCs

EDITORS'NOTE

Learning Your ABCs

With the intense competition in today’s mold market, shops are forced to look for ways to lower costs, speed up processes, improve quality and find competitive niches. Activity-based costing (ABC), which is a system to identify activities and assign costs to those activities regardless of the nature or size of a business (see http://www.moldmakingtechnology.com/articles/100405.html for Part 1 of a three-part series on ABC), may be one such way.

Moldmaker Profile for ABC Project

A small shop grossing around $10 million per year
Stable product line
Located in metro Dallas-Fort Worth Area or within a two-hour drive
No pending major events or problems (e.g., expansion, downsizing, bankruptcy, etc.)
Willing to provide financial and operating information (will be used anonymously)

Application of ABC to Be Employed

Gross margin analysis/job cost estimating template

Information Required for ABC Project

Interview with CEO, CFO, budget director and department heads
Organizational chart
Chart of accounts
Current year-to-date trial balance
Financial statements for the previous year and the current year-to-date
Cost accounting reports for the previous year and the current year-to-date
Product line/product marketing information
Departmental operating information and statistics as applicable

Cost accounting marketing research indicates that businesses begin thinking about higher-level management tools like activity-based costing when they gross around $30 million per year, and they really become receptive to it when they gross about $100 million per year. However, whether it is a lack of knowledge about ABC, the absence of any good implementation models, the fear of implementing something new, or perhaps a bit of complacency, smaller businesses need to investigate these tools as well.

Some moldmakers have started to adopt numerical processing technology, but in order to determine the usefulness of activity-based costing to today’s mold manufacturers, MoldMaking Technology is looking for mold shops (see profile sidebar) that would be interested in participating in an activity-based gross margin analysis project.

This analysis would look in detail only at the overhead costs/expenses that support the production process. It is estimated that such a project would require only about 30 hours, turning around the gross margin profile to the participating shops on the last day and showing them how to use it.

The product of this project would be an activity-based gross margin analysis of the shop showing break-even prices, target prices and a spreadsheet model they could use in-house for pricing, bidding and profitability analysis. The purpose of the project is to create a practical model to follow in using activity-based costing for moldmakers.

If you are interested in learning more about this opportunity—how it will be performed and by whom—feel free to contact me at (800) 579-8809..