Find the hidden cost placed in the overhead category
Maintenance Management Resources Six sigma and lean manufacturing, it's all about money:
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This category is a one time entry of a constant, updated annually, exported from your existing computer systems. Your existing method of calculation need only meet the TDC recommendations below. As with all labor categories, cost should be net cost (insurance, SSC, benefits, etc.), not just base salary.
The indirect expenses allocated in your budgeting process and assigned to your resources or departments. You typically include administration, facility, depreciation activity, and other costs you cannot directly charge to your manufactured items. With predetermined overhead rate, overhead costs are allocated to events as they occur. This helps control overhead costs and measure profit.
As long as you use the other TDC metrics to calculate overhead, you can accurately determine your true fixed and variable overhead rates. Only considering production demands and labor in your day to day management decisions, is just as bad as using labor and fixed overhead rates. This method divides the total expenses by the direct labor total.
Even using such generalities as overhead cost proves to be many times the labor cost. For a large part TDC is a way to isolate potential reductions in overhead cost. Therefore to remain competitive and make smart daily decisions, one must be knowledgeable as to how your company overhead rates were derived, and if that rate covers the TDC metrics in their proper perspective.
When calculating downtime cost, we strongly encourage managers to use individual cost factors such as TDC labor categories, as opposed to a blind overhead rate.
The manufacturing cost assessment methodology used is a detailed, component-focused, activity based technique for rigorously calculating the manufacturing cost of a product (direct materials, direct labor and some overhead costs).
This power point presentation is from accounting 2120 on performance evaluation through standard costs. Right click yellow link above and select "Save As" to download.
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When equipment breaks down, we all realize the area supervisor will be there insuring necessary actions are taken. Requesting maintenance, redirecting operators, reporting to upper level management, altering production schedules/flow, administrative tasks, etc. Fifty percent of the time a machine is down can be extra tasks a supervisor is required to perform.
What isn't tracked in today's facility is the time upper level management is tasked, related to a machine breakdown. The production manager, plant manager, general manager's time, can cost the the company several times the supervisors cost. Not just the time they may visit out on the floor to see how it's going, but other behind the scene tasks such as arranging meetings, making phone calls and other administrative tasks, to name a few.
As with all the other labor categories, procedures must be put in place to track these cost and assign to the appropriate cost center. TDC reports will point out what task may be better performed by less expensive employees.
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