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Managerial Account - Cost ControlDr. Martin Taylor

Team 7 (Boeshart/Sharipova/Alexander/Spencer)

February 3, 2014

University of TexasAt Arlington

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Agenda• Cost Control• Company Overview• Accounting Measure• H9200-XXX Oil Pressure Indicator

– Why does this indicator cost $11,940.28?

• H9900A-XXX Fuel Flow Indicator– How we reduced our costs to $3,279.99

• Conclusion

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Cost Control

• Primary purpose is to influence the factors that create cost and to control those costs.

• Starts by the business identifying what their costs are and evaluating if those costs are reasonable and affordable.

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Included in Cost Control

• Influencing factors that create changes to cost baseline

• Ensuring that requested changes are agreed upon in different company segments

• Managing actual changes when they occur to ensure a positive outcome

• Assuring that potential cost overruns do not exceed total funding for the project

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Included in Cost Control (Cont.)

• Monitoring cost performance to detect and understand variances from the cost baseline

• Recording all appropriate changes accurately against the cost baseline

• Preventing incorrect, inappropriate, or unapproved changes from being included in the reported cost or resource usage

• Informing appropriate stakeholders of approved changes• Acting to bring expected cost overruns within acceptable

limits and to decrease cost.

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Howell Instruments, Inc.

• Privately held small business founded in 1951• Fort Worth, TX HQ’s with 117,000 SF engineering,

manufacturing & production facilities• Aerospace electronics expertise: cockpit instrumentation,

engine health monitoring, jet engine test equipment & data acquisition systems

Engineering

Manufacturing

Quality Control

Fabrication

Field Services

Sales

Administration

Maintenance

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Howell Products

Engine Testers

Monitors

Indicators

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Manufacturing Overhead

Solder Reflow Oven

X-ray Machine

Component Storage

HALT/HAS

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Manufacturing Overhead

CNC FabricationCNC Lathe

Laser Engraver Injection Molding Machine

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Manufacturing Overhead

Machine ShopMetal Fabrication

PCB DEK Solder Screen Printer

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Selling, General & Administrative

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Standard Costs

Material Costs Labor Costs Overhead Costs

• Howell Instruments utilizes a Standard Cost accounting method, which is a predetermined cost for materials and for labor during normal operations

ResistorsCapacitors

PCB’sWire

And other direct materials

InspectorsAssemblersMachinists

PaintersTechnicians

BuildingEquipment

UtilitiesProd. SalariesMaintenance

SG&ACertification Costs

Engineering

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Accounting Measure

Equation Multiplier Activity Base

MOH Rate** 650% Labor Cost

SG&A Rate** 142% Manufacturing Cost

Markup Rate 15%

Direct Labor Rate $20

** Fixed Cost NOT Controllable by Managers

PMOH = Predicted Manufacturing Overhead PSG&A = Predicted Selling, General and Administrative

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H9200-XXX Indicator

• 2000 Technology• High Cost of Production

• Time 15.19 hours• Material $2008

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H9200-XXX Indicator

Direct Material $2,008.00Direct Labor Hours 15.19Labor Cost $20 303.80Mfg OH 650% 1,974.70Total Mfg Costs 4,286.50SG&A 142% 6,096.36Total Costs 10,382.86Markup 15% 1,557.43

Sales Price $11,940.28

Fixed Rates not controllable by

Managers

Time and Materials is controllable by

Managers

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H9900A-XXX

• 2012 Technology• Low Cost of Production

• Time 5.35 hours• Material $375

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H9900A-XXX

Direct Material $375.00Labor Hours 5.35Labor Cost $20.00 107.00Mfg OH 650% 695.50

Total Mfg Costs 1,177.50SG&A 142% 1,674.67Total Costs 2,852.17Markup 15% 427.83

Sales Price $3,279.99

Reduce Direct Labor Hours and Materials

Reduces Sales Price$8660.29 Savings!

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Pri

ce

Quantity Demanded

Conclusion

• Operationally we cannot control MOH and SG&A

• We manage the costs that we can control– Direct Labor Hours– Direct Materials

• Expansion into new Markets