MONTCLAIR TC

MONTCLAIR TC - Transcript

MONTCLAIR PAPER MILL STANDARD COST IDEAL COST TARGET COST EX ANTE DESIN RATHER THAN EX POST CONTROL CONCEPT HENRY FORD STORY MILLION CARS IN 695 EACH Cost reduction breakthrough of interchangeable parts Specialisation of labour Scale economies of component manufacturing SMILAR STORIES CANNON IN PERSONAL COPIER FEDEX IN OERNIGHT MAIL NINTENDO VIDEO GAMES THE DISPOSABLE 35 MM CAMERAS MOTOROLA IN CHIPS FOR BEEPERS OR MOBILE PHONES Problem of the case Cost Management Problem

Since the Montclair mill sells to merchants from its distribution center DC we must further deduct the costs to get the product to and through the DC including a capital charge on the investment in the DC as follows

QUESTION 2 Per Ton 1466 30 60 120 1256 11 25 1220 58 1162

Ajax s selling price to the merchant Less Freight paid by the mill Normal sales returns and allowances Montclair Capital Charge Montclair TC Ship to the DC DC Operating cost Subtotal DC Capital charge Mill Target Manufacturing Cost Let X TC X 1220 X 3 15 X 1162 1162 3 15 58

Materials perfect yield 902 Paper machine perfect yield 173 Converting perfect yield 267 Ideal cost 1 342 Allowable Variance Materials lost 1 257 Lost paper machine time 254 Conversion time lost 36 Ship to DC 11 step Standard Cost 2 900

352 550 520 hr 3 tons hr 600 hr 2 25 tons hr 2 159 902 427 173 303 267 A non value adding

In this situation the ideal cost for the mill is 1 342 T versus a target cost of 1 162 T That is even if operations were perfect the cost would still be 180 T too high