Understanding Cost Management in the Die Casting Industry

1. Chapter 10 Overview • Costs come from a variety of sources • There is a method for identifying those costs

2. Chapter 10 Objectives • Identify the highest cost factors in the die casting industry • Identify the three levels of a manufacturing cost system • Explain the difference between direct and tare material in a die casting

3. New Term • Operations • Traditionally used to identify steps that add value or transform the product

4. Cost Factors • Many factors • There’s a multi-level system for determining cost • The levels investigated are the: • Factory level • Work Cell level • Product level

5. Factory Level: Material/Alloy Cost • Direct costs • Added costs • Storage costs • Handling costs • Total Material Cost

6. Factory Level: Tare Material • Additional material used that is a byproduct of creating the casting • Much is reclaimed, some is scrapped outright • Costs must be recovered • Costs related to: • Collection and delivery • Oxidation loss

7. Work Cells • A grouping of machines that performs operations sequentially to a piece part • Comprised of 5 elements

8. Work Cell Cost Structure • Any workpiece passing through a work cell has value added by the work cell • An appropriate share of operating costs must be applied to the workpiece • Costs can be classified as: • Cost per idle hour • Cost per operating hour • Extra cost per piece

9. Work Cell Level Costs • Floor space • ROI • Fixed maintenance • Utilities • Services • Maintenance

10. Work Cell Level:General Burden • Some activities cannot be applied to specific functions • Accounting or legal activities and salaries of the plant manager or controller • Other costs included are “overapplied” or “underapplied” • Distributing it over all direct labor hours is a common accounting practice

11. Product Level Costs • Type of work cell called a “service” cell • Performs activities that do not actually change the product or add value but do add cost to the product • Could be the toolroom, maintenance or a conveyor • Computed costs of all products must include the costs of all the cells

12. Product Tree • Consists of many materials and/or items brought together to make one product • That product is used in many other products • The original materials are like the root system • The basic product is like the trunk • The many final products are the branches • The manufacturing steps for each item must be identified and listed after tree is complete

13. Summary • Costs come from a variety of sources • All the costs, plus a profit, have to be included in the selling price of the castings • A multi-level system can be used to determine cost • The levels investigated are the Factory level, the Work Cell level, and the Product level • The highest cost is not always the alloy

14. Factory level costs: Material/alloy = direct, added, storage, and handling costs Tare material Product level costs: Product tree Work cell level costs: Machine/facility Introducing the workpieces to the processing machine Extracting the workpieces from the processing machine An operator/controller Space (floor space) Summary cont.