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Chapter 10 OverviewChapter 10 Overview

Costs come from a variety of sourcesCosts come from a variety of sources There is a method for identifying those costsThere is a method for identifying those costs

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Chapter 10 ObjectivesChapter 10 Objectives

Identify the highest cost factors in the die Identify the highest cost factors in the die casting industrycasting industry

Identify the three levels of a manufacturing Identify the three levels of a manufacturing cost systemcost system

Explain the difference between direct and Explain the difference between direct and tare material in a die castingtare material in a die casting

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New TermNew Term

OperationsOperations• Traditionally used to identify steps that add value Traditionally used to identify steps that add value

or transform the productor transform the product

10-4

Cost FactorsCost Factors

Many factorsMany factors There’s a multi-level system for determining There’s a multi-level system for determining

costcost The levels investigated are the:The levels investigated are the:

• Factory levelFactory level• Work Cell levelWork Cell level• Product levelProduct level

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Factory Level: Factory Level: Material/Alloy CostMaterial/Alloy Cost

Direct costsDirect costs Added costsAdded costs Storage costsStorage costs Handling costsHandling costs Total Material CostTotal Material Cost

10-6

Factory Level: Factory Level: Tare MaterialTare Material

Additional material used that is a byproduct of Additional material used that is a byproduct of creating the castingcreating the casting

Much is reclaimed, some is scrapped outrightMuch is reclaimed, some is scrapped outright Costs must be recoveredCosts must be recovered Costs related to:Costs related to:

• Collection and delivery Collection and delivery • Oxidation lossOxidation loss

10-7

Work CellsWork Cells

A grouping of machines that performs operations A grouping of machines that performs operations sequentially to a piece partsequentially to a piece part

Comprised of 5 elementsComprised of 5 elements

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Work Cell Cost StructureWork Cell Cost Structure

Any workpiece passing through a work cell Any workpiece passing through a work cell has value added by the work cellhas value added by the work cell

An appropriate share of operating costs must An appropriate share of operating costs must be applied to the workpiecebe applied to the workpiece

Costs can be classified as:Costs can be classified as:• Cost per idle hourCost per idle hour• Cost per operating hourCost per operating hour• Extra cost per pieceExtra cost per piece

10-9

Work Cell Level CostsWork Cell Level Costs

Floor spaceFloor space ROIROI Fixed maintenanceFixed maintenance UtilitiesUtilities ServicesServices MaintenanceMaintenance

10-10

Work Cell Level:Work Cell Level:General BurdenGeneral Burden

Some activities cannot be applied to specific Some activities cannot be applied to specific functionsfunctions• Accounting or legal activities and salaries of the Accounting or legal activities and salaries of the

plant manager or controller plant manager or controller • Other costs included are “overapplied” or Other costs included are “overapplied” or

“underapplied”“underapplied” Distributing it over all direct labor hours is a Distributing it over all direct labor hours is a

common accounting practicecommon accounting practice

10-11

Product Level CostsProduct Level Costs

Type of work cell called a “service” cell Type of work cell called a “service” cell Performs activities that do not actually Performs activities that do not actually

change the product or add value but do add change the product or add value but do add cost to the productcost to the product• Could be the toolroom, maintenance or a Could be the toolroom, maintenance or a

conveyorconveyor Computed costs of all products must include Computed costs of all products must include

the costs of all the cellsthe costs of all the cells

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Product TreeProduct Tree

Consists of many materials Consists of many materials and/or items brought together and/or items brought together to make one productto make one product

That product is used in many That product is used in many other productsother products • The original materials are likeThe original materials are like

the root system the root system• The basic product is like the trunkThe basic product is like the trunk• The many final products are the branchesThe many final products are the branches

The manufacturing steps for each item The manufacturing steps for each item must be identified and listed after tree is completemust be identified and listed after tree is complete

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SummarySummary

Costs come from a variety of sourcesCosts come from a variety of sources All the costs, plus a profit, have to be included All the costs, plus a profit, have to be included

in the selling price of the castingsin the selling price of the castings A multi-level system can be used to determine A multi-level system can be used to determine

costcost The levels investigated are the Factory level, The levels investigated are the Factory level,

the Work Cell level, and the Product levelthe Work Cell level, and the Product level The highest cost is not always the alloyThe highest cost is not always the alloy

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Summary Summary cont.cont.

Factory level costs:Factory level costs:• Material/alloy = direct, Material/alloy = direct,

added, storage, and added, storage, and handling costshandling costs

• Tare materialTare material Product level costs:Product level costs:

• Product treeProduct tree

Work cell level costs:Work cell level costs:• Machine/facilityMachine/facility• Introducing the Introducing the

workpieces to the workpieces to the processing machineprocessing machine

• Extracting the Extracting the workpieces from the workpieces from the processing machineprocessing machine

• An operator/controllerAn operator/controller• Space (floor space)Space (floor space)