The Client
A growing manufacturing company that was facing challenges in accurately determining the true cost of its products.
The Challenge
As the company grew, its costing methods became outdated. Management lacked the necessary visibility to know the real cost of each product, making it difficult to make pricing decisions and identify areas for cost reduction. The company needed an expert solution to gain a clear view of its operational costs.
If you want to know more about these kinds of problems, you can read our article on 5 Common Bottlenecks in Manufacturing and How to Spot Them.
The UpKaizen Solution
UpKaizen adopted a comprehensive approach. After a detailed analysis of the manufacturing process, including materials, labor, and overhead costs, we implemented a new cost accounting system. The solution was based on the absorption costing method.
- Factor Analysis: We conducted an in-depth review of the various factors of production to determine a precise hourly rate for each machine.
- Custom Tool: A comprehensive spreadsheet was created to organize all the data, from energy consumption and maintenance costs to depreciation, to accurately calculate the machine’s hourly rate.
The Results
The implementation of the new costing system yielded immediate results:
- Cost Visibility: The company gained a clear and precise view of the real costs of each product, eliminating guesswork.
- Improved Decision-Making: Management can now easily analyze financial data and make informed decisions about pricing, budgeting, and strategies to increase profitability.
- Foundation for Growth: The new costing system provided a solid foundation for more robust financial management, allowing the company to set more realistic goals and take control of its future.
Do you identify with this case?
If your company suffers from a lack of cost visibility or inefficient management, our Production Efficiency Micro-Diagnostic can help you find the solutions.
