Products Costing in the Wood IndustryWood Industry Week

March 8, 2012

Adrienn Andersch, Urs Buehlmann, Jeff Palmer, and Jan WiedenbeckWIW at W

ERC

Agenda

• Current product costing methods

• Results of the 2010 product costing survey

• WOODCITE product costing software

3/13/2012 2

WIW at WERC

Current Product Costing Methods

3/13/2012 3

WIW at WERC

Structure of Accounting

3/13/2012 4

Accounting

Management Accounting

Tax Accounting

Financial Accounting

Cost Accounting

Internal Reporting

ExternalReporting

Product Costing

WIW at WERC

Problem Statement

3/13/2012 5

Changes in the manufacturing environment

Changes in the accounting environment

Manufacturing and Accounting Systems must be synchronized

WIW at WERC

Today’s Product Costing Systems

3/13/2012 6

Traditional Cost Accounting

Activity-Based Cost Accounting

Throughput Accounting

Lean Accounting

Job-Order Costing

Process Costing

Operation Costing

Actual Costing

Normal Costing

Standard Costing

Absorption / Full

Costing

Variable / Direct /

Costing

Marginal Costing

Activity-Based Costing

Time Driven Activity-

Based Costing

Theory of Constraint

Costing

Value Stream Costing

Target Costing

WIW at WERC

triedtried

Traditional Cost Accounting

• Time of introduction: 1900s

• Type of production: Mass production that has volume related overhead

• Variety of products: Homogeneous and limited variety

• Automation/Technology: Low and limited

• Overhead allocation: Usually volume related

• Cost included: Direct Material, Direct Labor, Manufacturing Overhead (both variable and fixed)

3/13/2012 7

WIW at WERC

Activity-Based Cost Accounting

• Time of introduction: 1970s

• Type of production: Any type of production

• Variety of products: Homogeneous and heterogeneous

• Automation/Technology: Low to high

• Overhead allocation: Based on activity usage

• Cost included: Direct Material, Direct Labor, Manufacturing Overhead (both variable and fixed), Sales, General, and Administration

3/13/2012 8

WIW at WERC

Throughput Accounting

• Time of introduction: 1980s

• Type of production: Production that has insignificant overhead and labor costs

• Variety of products: Homogeneous and heterogeneous product with high material costs

• Automation/Technology: Low

• Overhead allocation: None

• Cost included: Direct Material (only variable cost)

3/13/2012 9

WIW at WERC

Lean Accounting

• Time of introduction: 2000s

• Type of production: Mixed model of production

• Variety of products: Heterogeneous and high variety

• Automation/Technology: High

• Overhead allocation: Based on Value Stream

• Cost included: Direct Material, Total Value Stream Labor, Value Stream Overhead (both variable and fixed), Sales, General and Administration

3/13/2012 10

WIW at WERC

Evaluation Process to Select the Best Fitting Product Costing System

3/13/2012 11

1.Environmental 

Scan

1.Environmental 

Scan

2.Organizational 

Review

2.Organizational 

Review

3.Degree of Process 

Orientation

3.Degree of Process 

Orientation

— Competitive landscape— Leadership philosophy— Strategic plan— Technology— Budget

— Size— Level of centralization— Product diversity— Customer diversity— Production complexity

— Manufacturing— Service— Government

WIW at WERC

Results of the 2010 Product Costing Survey

3/13/2012 12

WIW at WERC

Survey Process

2

20

14 14

1

14

09

31

0

5

10

15

20

25

30

35

1 2 3 4 5 6 7 8 9

Num

ber o

f Respo

nden

ts

Week

1st Mailing 2nd Mailing

1st Reminder 2nd Reminder

Non

-Res

pons

eBi

as

3/13/2012 13

1. Wave 2. Wave 3. Wave 4. Wave

WIW at WERC

Survey Response Rate

3/13/2012 14

Description WCMA member

NON-WCMA

member

WPMA member

Millwork companies

from VATotal

Initial contact list 137 232 69 57 495

Participation denied 0 1 3 3 (7)

Returned mail 0 23 3 11 (37)

Adjusted population 137 208 63 43 451

Responded mail 35 16 15 8 74

Response rate 25.55% 7.69% 23.81% 18.60% 16.41%WIW at W

ERC

70%

11%

7%

4%7%

1%

CEO/President

Corporate and OperatingManagementAccounting

Production Management

Marketing / Sales

Engineering

Position of Respondents

3/13/2012 15

WIW at WERC

Main Product of Respondents

3/13/2012 16

12%11%1%

7%1%

43%

24%

33711 Kitchen/bath cabinets or countertops33712 Household/ institutional furniture33721 Office furniture (incl. fixtures)32111 Sawmills and wood preservation32121 Veneer/plywood/engineered wood prdts32191 Millwork32192 Other

67%

17%5%

5% 6%

Component manufacturerWholesalerArt/DesignWooden toys, games

Within the Other  Category 

WIW at WERC

Location of the Manufacturing Facility of Respondents

3/13/2012 17

5%31%

27%

30%

7 % of the respondents have facilities outside of the U.S.(5 companies in Canada)

WIW at WERC

Number of Employees in the Facility of Respondents in 2009

3/13/2012 18

30

21

14

9

0

0 5 10 15 20 25 30 35

1-19

20-49

50-99

100-499

More than 500

Number of Respondents

Num

bber

of E

mpl

oyee

s

Bureau of Labor Statistics (2009)

Avg. millwork employee size: 24

WIW at WERC

Sales Volume in the Facility of Respondents in 2009

3/13/2012 19

14

12

15

17

10

4

0

0

0 5 10 15 20

Less than $1 million

$1.1 million - $2 million

$2.1 million - $5 million

$5.1 million - $10 million

$10.1 million - $25 million

$25.1 million - $75 million

$75.1 million - $300 million

More than $300 million

Number of Respondents

Ann

ual S

ales

Vol

ume

Census Bureau (2008)

Avg. millwork sales volume: $6.3 million

WIW at WERC

Sales Volume in 2009 Compared to 2006

3/13/2012 20

85%

7%8%

Smaller Same Larger

WIW at WERC

Total Product Cost of Respondents

3/13/2012 21

7

35

18

9

05

10152025303540

Weekly Monthly Yearly Infrequently

Num

ber o

f Res

pond

ents

Period of overhead cost calculation

How often do you calculate

overhead cost?

Direct Material Cost41%

Direct Labor Cost21%

Mfg. Overhead Cost18%

General and Administrative

Expenses14%

Sales Expenses

6%

WIW at WERC

Type of Cost Accounting System Used by Respondents

3/13/2012 22

Traditional Cost Accounting

System74%

Activity-Based Cost Accounting

System13%

Lean Accounting4%

Other (Own Setup)

9%

WIW at WERC

Information Provided by the Current Costing System of Respondents

3/13/2012 23

Outstanding11%

Good 39%Adequate

23%

Needs Improvement

24%

Poor3%

4

55

120204060

Yes,frequently

Yes,occasionally

No, never

Num

ber o

f R

espo

nses

Do problems arise from erroneous information

provided by the costing system?

WIW at WERC

Problems the Costing System of Respondents Suffer from

3/13/2012 24

2.162.162.232.342.462.552.612.622.762.762.772.783.073.08

1 2 3 4 5

Lack of Management buy-inSystem is too costly to maintain

Lack of ownershipInaccurate overhead cost assignment

Lack of financial expertise in the companySoftware problems

Redundant dataErroneous Data

Lack of clear objectivesLack of data

No interface to enterprise softwareNo link to other management initiatives

Lack of resources

Average rating of respondents (1=not important, 5=very important)

Failure to understand the three uses of costing system

WIW at WERC

Problems the Costing System of Respondents Suffer from

Other Problems:

•“Human error by typing the data in”•“Product costing is not part of the accounting system”•“Moving cost can change cost, we may not realize it immediately”•“Regulations (local, federal)”•“Redundancy”•“Managers do not use the data”

3/13/2012 25

WIW at WERC

Objectives of the Costing System That are Existing / Important by Respondents

3/13/2012 26

4.36

3.13

3.70

2.75

4.52

4.44

4.38

4.30

3.05

2.44

2.35

2.31

2.29

2.27

2.21

2.20

1.98

1.88

1 2 3 4 5

Easily accessible

Inexpensive to buy

Maintenance cost is low

Be an individual system

Easy to operate

Provide accurate cost informationfor management purposes

Provide easily available, up-to-dateinformation for cost estimates

Easily customizable

Be part of an MRP / ERPor other mfg. system

Average rating of respondents (1=not important, 5=very important)

Existing in Respondent's SystemImportant to Respondents

WIW at WERC

Further Comments Regards to the Accounting System of Respondents

Other Important Elements:

•“Building custom reports”•“Multiusers”•“It would be nice if it would work well with QuickBooks Pro”•“No time consuming”•“Displays, Historical unit cuts, Trends”

3/13/2012 27

WIW at WERC

Further Comments Regards to the Accounting System of Respondents

• “Our system is old, hard to modify the logic, but still works”• “Mostly manually costing”• “Using only Excel”• “User friendliness is important”• “Our system does not account for scrap rate easily”• “Ability to maintain actual/average and market costs”• “We need an effective system on a reasonable cost”• “We have a small job shop - everything is custom ordered”

3/13/2012 28

WIW at WERC

WOODCITE Product Costing Software

3/13/2012 29

WIW at WERC

WOODCITE

3/13/2012 30

• WOODCITE 1.0 is a product costing software designed for hardwood dimension and component manufacturers

• WOODCITE 1.0 is a Microsoft® Access application intended to calculate a company’s product cost and to create competitive bids for quote requestsWIW at W

ERC

WOODCITE

3/13/2012 31

WOODCITE 1.0 is available for:•Microsoft® Access 2002 / 2003 •Microsoft® Access 2007•Microsoft® Access 2010

WOODCITE 1.0 can be downloaded at:

http://www.visionquestwv.org\wcma\costing.zip, or

http://www.visionquestwv.org/wcma/woodciteWIW at W

ERC

Welcome to WOODCITE

3/13/2012 32

WIW at WERC

Acknowledgements

3/13/2012 33

WIW at WERC

Thank You For Your Attention

3/13/2012 34

Questions?

WIW at WERC