Products Costing in the Wood Industry Wood Industry Week...
Transcript of Products Costing in the Wood Industry Wood Industry Week...
Products Costing in the Wood IndustryWood Industry Week
March 8, 2012
Adrienn Andersch, Urs Buehlmann, Jeff Palmer, and Jan WiedenbeckWIW at W
ERC
Agenda
• Current product costing methods
• Results of the 2010 product costing survey
• WOODCITE product costing software
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Current Product Costing Methods
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Structure of Accounting
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Accounting
Management Accounting
Tax Accounting
Financial Accounting
Cost Accounting
Internal Reporting
ExternalReporting
Product Costing
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Problem Statement
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Changes in the manufacturing environment
Changes in the accounting environment
Manufacturing and Accounting Systems must be synchronized
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Today’s Product Costing Systems
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Traditional Cost Accounting
Activity-Based Cost Accounting
Throughput Accounting
Lean Accounting
Job-Order Costing
Process Costing
Operation Costing
Actual Costing
Normal Costing
Standard Costing
Absorption / Full
Costing
Variable / Direct /
Costing
Marginal Costing
Activity-Based Costing
Time Driven Activity-
Based Costing
Theory of Constraint
Costing
Value Stream Costing
Target Costing
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Traditional Cost Accounting
• Time of introduction: 1900s
• Type of production: Mass production that has volume related overhead
• Variety of products: Homogeneous and limited variety
• Automation/Technology: Low and limited
• Overhead allocation: Usually volume related
• Cost included: Direct Material, Direct Labor, Manufacturing Overhead (both variable and fixed)
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Activity-Based Cost Accounting
• Time of introduction: 1970s
• Type of production: Any type of production
• Variety of products: Homogeneous and heterogeneous
• Automation/Technology: Low to high
• Overhead allocation: Based on activity usage
• Cost included: Direct Material, Direct Labor, Manufacturing Overhead (both variable and fixed), Sales, General, and Administration
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Throughput Accounting
• Time of introduction: 1980s
• Type of production: Production that has insignificant overhead and labor costs
• Variety of products: Homogeneous and heterogeneous product with high material costs
• Automation/Technology: Low
• Overhead allocation: None
• Cost included: Direct Material (only variable cost)
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Lean Accounting
• Time of introduction: 2000s
• Type of production: Mixed model of production
• Variety of products: Heterogeneous and high variety
• Automation/Technology: High
• Overhead allocation: Based on Value Stream
• Cost included: Direct Material, Total Value Stream Labor, Value Stream Overhead (both variable and fixed), Sales, General and Administration
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Evaluation Process to Select the Best Fitting Product Costing System
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1.Environmental
Scan
1.Environmental
Scan
2.Organizational
Review
2.Organizational
Review
3.Degree of Process
Orientation
3.Degree of Process
Orientation
— Competitive landscape— Leadership philosophy— Strategic plan— Technology— Budget
— Size— Level of centralization— Product diversity— Customer diversity— Production complexity
— Manufacturing— Service— Government
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Results of the 2010 Product Costing Survey
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Survey Process
2
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1
14
09
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0
5
10
15
20
25
30
35
1 2 3 4 5 6 7 8 9
Num
ber o
f Respo
nden
ts
Week
1st Mailing 2nd Mailing
1st Reminder 2nd Reminder
Non
-Res
pons
eBi
as
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1. Wave 2. Wave 3. Wave 4. Wave
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Survey Response Rate
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Description WCMA member
NON-WCMA
member
WPMA member
Millwork companies
from VATotal
Initial contact list 137 232 69 57 495
Participation denied 0 1 3 3 (7)
Returned mail 0 23 3 11 (37)
Adjusted population 137 208 63 43 451
Responded mail 35 16 15 8 74
Response rate 25.55% 7.69% 23.81% 18.60% 16.41%WIW at W
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70%
11%
7%
4%7%
1%
CEO/President
Corporate and OperatingManagementAccounting
Production Management
Marketing / Sales
Engineering
Position of Respondents
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Main Product of Respondents
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12%11%1%
7%1%
43%
24%
33711 Kitchen/bath cabinets or countertops33712 Household/ institutional furniture33721 Office furniture (incl. fixtures)32111 Sawmills and wood preservation32121 Veneer/plywood/engineered wood prdts32191 Millwork32192 Other
67%
17%5%
5% 6%
Component manufacturerWholesalerArt/DesignWooden toys, games
Within the Other Category
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Location of the Manufacturing Facility of Respondents
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5%31%
27%
30%
7 % of the respondents have facilities outside of the U.S.(5 companies in Canada)
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Number of Employees in the Facility of Respondents in 2009
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30
21
14
9
0
0 5 10 15 20 25 30 35
1-19
20-49
50-99
100-499
More than 500
Number of Respondents
Num
bber
of E
mpl
oyee
s
Bureau of Labor Statistics (2009)
Avg. millwork employee size: 24
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Sales Volume in the Facility of Respondents in 2009
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14
12
15
17
10
4
0
0
0 5 10 15 20
Less than $1 million
$1.1 million - $2 million
$2.1 million - $5 million
$5.1 million - $10 million
$10.1 million - $25 million
$25.1 million - $75 million
$75.1 million - $300 million
More than $300 million
Number of Respondents
Ann
ual S
ales
Vol
ume
Census Bureau (2008)
Avg. millwork sales volume: $6.3 million
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Sales Volume in 2009 Compared to 2006
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85%
7%8%
Smaller Same Larger
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Total Product Cost of Respondents
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7
35
18
9
05
10152025303540
Weekly Monthly Yearly Infrequently
Num
ber o
f Res
pond
ents
Period of overhead cost calculation
How often do you calculate
overhead cost?
Direct Material Cost41%
Direct Labor Cost21%
Mfg. Overhead Cost18%
General and Administrative
Expenses14%
Sales Expenses
6%
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Type of Cost Accounting System Used by Respondents
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Traditional Cost Accounting
System74%
Activity-Based Cost Accounting
System13%
Lean Accounting4%
Other (Own Setup)
9%
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Information Provided by the Current Costing System of Respondents
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Outstanding11%
Good 39%Adequate
23%
Needs Improvement
24%
Poor3%
4
55
120204060
Yes,frequently
Yes,occasionally
No, never
Num
ber o
f R
espo
nses
Do problems arise from erroneous information
provided by the costing system?
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Problems the Costing System of Respondents Suffer from
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2.162.162.232.342.462.552.612.622.762.762.772.783.073.08
1 2 3 4 5
Lack of Management buy-inSystem is too costly to maintain
Lack of ownershipInaccurate overhead cost assignment
Lack of financial expertise in the companySoftware problems
Redundant dataErroneous Data
Lack of clear objectivesLack of data
No interface to enterprise softwareNo link to other management initiatives
Lack of resources
Average rating of respondents (1=not important, 5=very important)
Failure to understand the three uses of costing system
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Problems the Costing System of Respondents Suffer from
Other Problems:
•“Human error by typing the data in”•“Product costing is not part of the accounting system”•“Moving cost can change cost, we may not realize it immediately”•“Regulations (local, federal)”•“Redundancy”•“Managers do not use the data”
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Objectives of the Costing System That are Existing / Important by Respondents
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4.36
3.13
3.70
2.75
4.52
4.44
4.38
4.30
3.05
2.44
2.35
2.31
2.29
2.27
2.21
2.20
1.98
1.88
1 2 3 4 5
Easily accessible
Inexpensive to buy
Maintenance cost is low
Be an individual system
Easy to operate
Provide accurate cost informationfor management purposes
Provide easily available, up-to-dateinformation for cost estimates
Easily customizable
Be part of an MRP / ERPor other mfg. system
Average rating of respondents (1=not important, 5=very important)
Existing in Respondent's SystemImportant to Respondents
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Further Comments Regards to the Accounting System of Respondents
Other Important Elements:
•“Building custom reports”•“Multiusers”•“It would be nice if it would work well with QuickBooks Pro”•“No time consuming”•“Displays, Historical unit cuts, Trends”
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Further Comments Regards to the Accounting System of Respondents
• “Our system is old, hard to modify the logic, but still works”• “Mostly manually costing”• “Using only Excel”• “User friendliness is important”• “Our system does not account for scrap rate easily”• “Ability to maintain actual/average and market costs”• “We need an effective system on a reasonable cost”• “We have a small job shop - everything is custom ordered”
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WOODCITE Product Costing Software
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WOODCITE
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• WOODCITE 1.0 is a product costing software designed for hardwood dimension and component manufacturers
• WOODCITE 1.0 is a Microsoft® Access application intended to calculate a company’s product cost and to create competitive bids for quote requestsWIW at W
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WOODCITE
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WOODCITE 1.0 is available for:•Microsoft® Access 2002 / 2003 •Microsoft® Access 2007•Microsoft® Access 2010
WOODCITE 1.0 can be downloaded at:
http://www.visionquestwv.org\wcma\costing.zip, or
http://www.visionquestwv.org/wcma/woodciteWIW at W
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Welcome to WOODCITE
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Acknowledgements
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Thank You For Your Attention
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Questions?
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