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Cost System Evaluation Rubber Enterprise Case Study. ME2605 – Cost Management Fouad El Mernissi Frederico Ottoni Lorena Calvo Pablo Abad. Situation Description. Brazilian Company 120 employees Anual income = R$ 12 million Products: Rubber Technical Components. Process Description. - PowerPoint PPT Presentation
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ME2605 – Cost Management
Fouad El MernissiFrederico OttoniLorena CalvoPablo Abad
Situation DescriptionBrazilian Company
120 employees
Anual income = R$ 12 million
Products: Rubber Technical Components
Process Description
Low Complexity – 4 main processesHigh Variety – 300 different products Intensive hand labour (61% of total costs for workers’ wages)
Mixture Vulcanization Finishing Packaging
Low Complexity High Complexity
High Automation
Intensive Labour
High Automation
Intensive Labour
High Volume and Low Variety
Cost centres ABC ABC or Process costing
Process Costing
Low Volume and High Variety
ABC Cost centres ABC or Process costing
Process Costing
Source: Brunstein et all, 2001
Cost SystemRaw
Materials
Direct Operational Expenses
IndirectOperational Expenses
Administrative Expenses
Standard Cost
Cost centres
Products Departments
Costs Distribution
Cost Centre DemonstrationCost Items Total cost Percentage Distribution drivers
Wages R$ 159 663,34 61,52% Sector
Utilities 2 R$ 25 578,23 9,86% Several
Meal R$ 23 539,40 9,07% Labour (number)
Electricity R$ 15 386,90 5,93% Consumption
Rent R$ 13 370,16 5,15% Area
Depreciation R$ 10 819,01 4,17% Per group
Utilities 1 R$ 7 591,92 2,93% Several
Insurance R$ 3 113,43 1,20% Labour (number)
Water R$ 449,00 0,17%Labour (number) or consumption
Total R$ 259 511,39 100,00%
Cost Center Category PrimaryCost Percentage %Administrative Administrative R$ 35 762,57 12,96Comercial adm. Administrative R$ 6 783,69 2,46Maintenance indirect R$ 27 640,84 10,01Industrial Adm. indirect R$ 18 880,85 6,84Engineering indirect R$ 8 436,91 3,06Quality indirect R$ 8 242,60 2,99Store indirect R$ 6 644,14 2,41Buildings indirect R$ 3 421,73 1,24Laboratory indirect R$ 3 380,85 1,22Expedition indirect R$ 2 933,91 1,06PCP indirect R$ 2 776,20 1,01Other operations indirect R$ 1 729,65 0,63Compressor indirect R$ 191,22 0,07Restaurant indirect R$ 176,58 0,06Heating indirect R$ 109,98 0,04Tower indirect R$ 65,94 0,02Presses direct R$ 35 426,37 12,83Mixture & Preparation direct R$ 32 409,89 11,74Finishing direct R$ 28 405,83 10,29Presses B6-B7 direct R$ 22 118,41 8,01Finishing Eaton direct R$ 16 634,21 6,03Injector l3 direct R$ 7 865,30 2,85Injector l1 direct R$ 5 993,23 2,17Total - R$ 276 030,90 100
Cost Center Category Primary Cost
Percentage %
Distribuited Cost
Percentage
Presses direct R$ 35 426,37 23,80% R$ 64 848,30 29,95%Mixture & Preparation direct R$ 32 409,89 21,77% R$ 46 201,67 21,34%
Finishing direct R$ 28 405,83 19,08% R$ 31 075,49 14,35%
Presses B6-B7 direct R$ 22 118,41 14,86% R$ 31 462,27 14,53%
Finishing Eaton direct R$ 16 634,21 11,17% R$ 17 899,80 8,27%
Injector l3 direct R$ 7 865,30 5,28% R$ 13 464,39 6,22%
Injector l1 direct R$ 5 993,23 4,03% R$ 11 571,98 5,34%
Total - R$ 148 853,24 100,00% R$ 216 523,90 100,00%
Two-stage process : exampleOverhead cost accounts
Manufacturing, industrial administration, engineering
PressesMixture & Preparation
Injector L1…
Products
Hours Cost centre overheads Overhead rates
Presses: (machine hours) 200000 64848,3 0,324
Mixture and preparation: labour hours 100000 46201,67 0,462
Finishing ( labour hours) 100000 31075,49 0,311
Inject l1 (machine hours) 100000 11571,98 0,116
UnitsCost per unit or per
hour Machine hours Cost
Direct cost 10000 1,08 10800Overhead allocation 0Presses 0,324 0,01 32,4Mixture and preparation 0,231 0,05 115,5Finishing 0,311 0,04 124,4Inject l1 0,116 0,01 11,6Total cost 11083,9Cost per unit 1,10839
Rubber ring
Conclusions and Suggestions
Accounting Focus Management FocusPossibility of applying multiple methods in the
companyImportance of identifying the information’s cost-
benefit
Raw Materials
Direct OperationalExpenses
IndirectOperationalExpenses
AdministrativeExpenses
Products
CostCentres
StandardCost
Products
ActivityBased
Costing
Departments Losses Process Services