Costing Product Capacity Of A Facility and Demand Affects

Do you wonder what your shop burden rates should be if you normally work 8 hour days but you only have 4 hours of work?   Do you charge the customer for all 8 hours?  There are some companies that will charge for 8 hours of work even when there was only 4 hours of labor.    This gives an inflated cost to the product and may thus give it the appearance of being not profitable when if fact it was profitable.  The unused time must be classified as idle time and its costs should not be attributed to a specific job cost or product family.

This unused time should be calculated and given to management in order to plan, schedule, and manage the company.  Some situations when this may happen is when material is late, machine broke down, etc where management may be able to change processes to make the shop more effective.

 

Author: MIE Solutions

David Ferguson has over 20 years of experience in the manufacturing and fabrication industry. David Ferguson has been to over 100 manufacturing companies helping and guiding them to be more efficient and cost effective. As a child in Junior High School David Ferguson found a passion for the early computer systems, which would drive much of his future work. David Ferguson created and sold his first computer program, Arrow Data Systems, which was an early CAD/CAM system for the Apple 2e Computer. In the late 1980's after seeing his father (a sheet metal manufacturer) come home many nights estimating, David Ferguson saw an opportunity to optimize his effort through computer technology. Shortly thereafter the FabriTRAK Production Control package was developed. The Quote It! estimating package was developed out of the FabriTRAK system to become one of the leading sheet metal estimating packages in the world. David Ferguson has always had a passion for developing software to make the manufacturing process simpler, faster and more efficient. Prior to founding MIE Solutions David Ferguson worked with his father at Alco Sheet Metal, METALSOFT Inc. and was a consultant at Toyota Motors Sales. David Ferguson has his Masters in Computer Science and Mathematics from California State University, Long Beach.

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