SFSA Spring Management Meeting May 2, 2012

Presented By

Douglas Dallmer CMS Associates, Inc. 1206 Hobson Oaks Ct. Naperville, IL 60540 630-369-8284

The Good News Is YOU DO NOT HAVE TO CHANGE YOUR ACCOUNTING SYSTEM ! !

The Bad News Is

Dedicate some finance and plant operations staff time to the project team to perform the analysis
Create some additional General Ledger account numbers Create some additional Labor Distribution codes Identify a staff member to work on the development of the Excel models which will allow your foundry to routinely perform the analysis on a periodic basis

To Increase The Value Of:

Information in the Cost Estimate sheet Visibility of specific operations

To Avoid:
Under costing/pricing complex casting Over costing/pricing simple castings Avoid having some castings subsidizing other castings

Create a Project Team

Finance/Accounting staff person
Foundry process/operations person Must have full support of management

Identify Work Centers and their cost drivers

May already be identified; tons, pounds, person - crew
- machine hours, blast cycles, etc. Information may already be collected May require additional General Ledger and Labor codes First time through may require SWAGs and/or opinion of employees

Project team uses the Trial Balance for cost information

Critical for the creditability of the project
Project team will produce a document which lists all of the work centers and show all of the costs When the total cost generated by the Project Team is the same as the number the Financial Officer published then any discussion is about the distribution of the costs Critical for the foundry to be able to redo the Activity Based Cost analysis on a monthly, quarterly, or annually

Project Team will create a series of Excel spreadsheets which summarize the various assumptions made and the distribution of certain costs: supervision, utilities, etc.. The final spreadsheet shows the integration of the costs and drivers to calculate the cost factors. The lower Right hand total should agree with the Financial Officers cost

Distribution Of The Information

Departments and workcenters are shown as rows Melting Department Arc Workcenter #1 Induction Molding Main Floor Side floor Airset Loop

Distribution Of The Information

Cost categories are listed as columns
Workcenter Direct Costs Cost Driver for the Workcenter Labor Cost Includes direct, indirect, maintenance labor and fringe benefits Material Energy Other Maintenance parts, safety supplies, etc. The total of the above is divided by the cost driver to develop the Workcenter Direct Cost Factor

Distribution Of The Information

Cost categories are listed as columns
Workcenter Overhead Costs Supervision Depreciation General Plant Overhead Includes energy, property taxes, support departments The total of the above is divided by the Workcenter Direct Cost to develop the Workcenter Overhead Rate

The total of the Workcenter Direct Cost and Overhead Cost generate the fully loaded workcenter rate

Concept For Handling Metal Cost and Melting Cost

Metal Cost is simply the cost of new metallics, ferro-alloys,
and slagging materials that go into the weight of the casting being shipped out the door. Does not include any adjustment for the scrap rate of the casting. Does not include any adjustment for the overhead of the workcenter.

Melting Cost, or Conversion Cost, is the total of all

labor, material, refractory, ladle and furnace repair, energy, maintenance, etc.: all costs between the scrap yard and the top of the mold.

$0.24/Lb <- Metal

$0.11/Lb <- Conv Average Casting

42% <- Plt OH

74.25 Lbs <- Cstg Wt

High Yield Low Scrap

65% 3% 114 $17.82 $12.54 $30.36 $0.41 $0.94 $31.30 $13.15 $44.45 $0.60

Low Yield High Scrap

45% 9% 165 $17.82 $18.15 $35.97 $0.48 $3.56 $39.53 $16.60 $56.13 $0.76

Mold Yield % Scrap Rate % Mold Prd Wt Lbs Metal Cost $ Conv Cost $ Cstg Cost ($/Lb) Scrap Cost $ Plant OH Cost $ Cstg Cost ($/Lb)

55% 6% 135 $17.82 $14.85 $32.67 $0.44 $2.09 $34.76 $14.60 $49.36 $0.66

Having gone to the trouble of performing a detail Activity Based cost analysis what do we do with the information.
Prepare detail cost estimates Each activity is fully costed at the workcenter level and at the fully loaded plant cost The printouts provides a one page summary , a one page operational summary and a detail listing of the activities.

Use of the Operation Summary

Any room in the Profit SG&A?
Finishing Castings/Hour seem low Core Making Two cores are way too high

CMS Associates, Inc. is a consulting firm which has been providing consulting services to the foundry industry for a few decades. We would be pleased to work with any steel foundry on a individual basis. A few years ago I made a presentation to another Management Meeting and I offered to your Executive Director to work with the Society on a multi-foundry study to develop a data base. That offer is still on the table.

We recognized that cost data , scrap rates, mold yields, productivity data, etc. is very sensitive. We utilize an Excel add-in package called @Risk from Palisade Corp to mask actual specific data points and converts them into a statistic value based on the probability of the different values occurring.