patrick.net

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High Interest Rates Fix Everything

PIPE DREAM!!

No disrespect, but you and I both know that these cost accounting methods are a way of overhead salaried people trying to tie themselves to value-add activities because of 'lean' principles. I am sick and tired of seeing situations over and over again where some $100,000+ a year turd tries to make a company profitable by using these types of methods to attack the direct labor of a company, which you and I both know normally comes out to about 10% of the total expenses associated with a product. It is not that ABC isn't understood, it is purposely misused, and that final step you describe is nonsense. The process stops at the comparison stage because there is always the excuse given, oh we'll find something else for that person to be in charge of, or we'll utilize this resource, machine, or floor space some other way. My only point was that using ABC incorrectly (You of course describe the ideal) causes bad decisions. I'm still not sure what your point is, anything can be misused.

"once this cost has been calcualted the capacity of the departments as ‘total # of cheks written’ has to be decided."

This is a detail I may concede but I was taught you want to know the actual cost of the checks you are writing. What you are describing to me sounds useful if you want to know the theoretical minimum cost that your current processes can deliver.

If we switch back to a production model, I would be inclined to outsource a function if as you are hinting my utilization of a station falls below a threshold where I could gain a better economy of scale letting someone better at that function take it over, but that will lead us to a much more interesting strategic discussion. Before we know it, we'll have a whole factory simulated right here :)

"Then total capcity is the total time available i.e. total time of all the people who take part in any of the activities mentioned. the supervisor’s time is not taken here bu the cost is."

Sorry, I have to retract my concession because you came back to my assumption. I was assuming normal efficiency in my example, and for argument's sake the clerks are direct labor so they go home when they aren't writing checks. The supervisor is fixed factory overhead in this example which is why you correctly say it is not her time, but her cost because it is fixed. The lights staying on and extra capacity in my opinion is simply considered waste.

OK I'll stop myself now, please understand I am anal about this stuff. Sorry everyone.