University of Texas
At Arlington
Managerial Account - Cost Control
Dr. Martin Taylor
Team 7
(Boeshart/Sharipova/Alexander/Spencer)
February 3, 2014
1
Agenda
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Cost Control
Company Overview
Accounting Measure
H9200-XXX Oil Pressure Indicator
– Why does this indicator cost $11,940.28?
• H9900A-XXX Fuel Flow Indicator
– How we reduced our costs to $3,279.99
• Conclusion
2
Cost Control
• Primary purpose is to influence the factors that
create cost and to control those costs.
• Starts by the business identifying what their
costs are and evaluating if those costs are
reasonable and affordable.
3
Included in Cost Control
• Influencing factors that create changes to cost
baseline
• Ensuring that requested changes are agreed
upon in different company segments
• Managing actual changes when they occur to
ensure a positive outcome
• Assuring that potential cost overruns do not
exceed total funding for the project
4
Included in Cost Control (Cont.)
• Monitoring cost performance to detect and understand
variances from the cost baseline
• Recording all appropriate changes accurately against the
cost baseline
• Preventing incorrect, inappropriate, or unapproved
changes from being included in the reported cost or
resource usage
• Informing appropriate stakeholders of approved changes
• Acting to bring expected cost overruns within acceptable
limits and to decrease cost.
5
Howell Instruments, Inc.
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•
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Privately held small business founded in 1951
Fort Worth, TX HQ’s with 117,000 SF engineering,
manufacturing & production facilities
Aerospace electronics expertise: cockpit instrumentation,
engine health monitoring, jet engine test equipment & data
acquisition systems
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Howell Products
Engine Testers
Monitors
Indicators
7
Manufacturing Overhead
X-ray Machine
HALT/HAS
Solder Reflow Oven
Component Storage
8
Manufacturing Overhead
Laser Engraver
CNC Lathe
Injection Molding Machine
CNC Fabrication
9
Manufacturing Overhead
PCB
Metal Fabrication
DEK Solder Screen Printer
Machine Shop
10
Selling, General & Administrative
11
Standard Costs
•
Howell Instruments utilizes a Standard Cost accounting
method, which is a predetermined cost for materials and for
labor during normal operations
Material Costs
Labor Costs
Overhead Costs
Resistors
Capacitors
PCB’s
Wire
And other direct
materials
Inspectors
Assemblers
Machinists
Painters
Technicians
Building
Equipment
Utilities
Prod. Salaries
Maintenance
SG&A
Certification Costs
Engineering
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Accounting Measure
MOH Rate**
SG&A Rate**
Equation
𝑃𝑀𝑂𝐻 𝐶𝑜𝑠𝑡𝑠
𝑇𝑜𝑡𝑎𝑙 𝐿𝑎𝑏𝑜𝑟 𝐶𝑜𝑠𝑡𝑠
𝑃𝑆𝐺&𝐴 𝐶𝑜𝑠𝑡𝑠
𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑛𝑢𝑓. 𝐶𝑜𝑠𝑡𝑠
Multiplier Activity Base
650%
Labor Cost
142%
Manufacturing
Cost
Markup Rate
15%
Direct Labor Rate
$20
** Fixed Cost NOT Controllable by Managers
PMOH = Predicted Manufacturing Overhead
PSG&A = Predicted Selling, General and Administrative
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H9200-XXX Indicator
• 2000 Technology
• High Cost of Production
• Time
• Material
15.19 hours
$2008
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H9200-XXX Indicator
Direct Material
Direct Labor Hours
Labor Cost
Mfg OH
Total Mfg Costs
SG&A
Total Costs
Markup
Sales Price
$2,008.00
15.19
$20
650%
142%
15%
303.80
1,974.70
4,286.50
6,096.36
10,382.86
1,557.43
Time and Materials is
controllable by
Managers
Fixed Rates not
controllable by
Managers
$11,940.28
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H9900A-XXX
• 2012 Technology
• Low Cost of Production
• Time
• Material
5.35 hours
$375
16
H9900A-XXX
Direct Material
Labor Hours
Labor Cost
Mfg OH
Total Mfg Costs
SG&A
Total Costs
Markup
Sales Price
$375.00
5.35
$20.00
650%
142%
15%
107.00
695.50
Reduce Direct Labor
Hours and Materials
1,177.50
1,674.67
2,852.17
427.83
$3,279.99
Reduces Sales Price
$8660.29 Savings!
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Conclusion
• Operationally we cannot control MOH and
SG&A
• We manage the costs that we can control
• Expansion into new
Markets
Price
– Direct Labor Hours
– Direct Materials
Quantity Demanded
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