Government Policies and Market Analysis for

Manufacturing in Canada - 2016Date: March 6, 2016

By: Paul Young, CPA, CGA

Agenda

• Trends

• Sample of Manufacturing Statements

• Costing Method

• Productivity

• Key Costs

• CPC/Policies

• Government Policies

• Business Quotes

• Next Steps

Disclaimer

• This presentation is on view of trade data for Canada. It is up to individuals to do their own research as part evaluating government polices and their impact on the markets.

Paul Young - Presenter

Bio

• CPA/CGA

• 25 years of experience in Academia, Industry and Financial solutions

Manufacturing Sales / Canada

GDP / Impact

Sample of Manufacturing F/S

Sample of Manufacturing F/S

Costing Method• Absorption costing

• Absorption costing means that all of the manufacturing costs are absorbed by the units produced. In other words, the cost of a finished unit in inventory will include direct materials, direct labor, and both variable and fixed manufacturing overhead. As a result, absorption costing is also referred to as full costing or the full absorption method.

• Variable Costing• Under variable or direct costing, the fixed manufacturing overhead costs are not allocated or

assigned to (not absorbed by) the products manufactured. Variable costing is often useful for management's decision-making. However, absorption costing is required for external financial reporting and for income tax

• Standard Costing• Rather than assigning the actual costs of direct material, direct labor, and manufacturing overhead

to a product, many manufacturers assign the expected or standard cost. This means that a manufacturer's inventories and cost of goods sold will begin with amounts reflecting the standard costs, not the actual costs, of a product. Manufacturers, of course, still have to pay the actual costs. As a result there are almost always differences between the actual costs and the standard costs, and those differences are known as variances.

• Activity-based costing• Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical

manner than the traditional approach of simply allocating costs on the basis of machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are actually demanding the activities.

Key Costs for Manufacturing

• Raw Materials (Commodity Prices)

• Labor (Union Contracts or non-union)

• Hydro Rates (Industrial rates)

• Equipment Depreciation (Capital Investment)

• Other Overhead

• Currency Rates (exports)

What is Productivity?• A measure of the efficiency of a person, machine, factory, system,

etc., in converting inputs into useful outputs. Productivity is computed by dividing average output per period by the total costs incurred or resources (capital, energy, material, personnel) consumed in that period. Productivity is a critical determinant of cost efficiency

Labour Productivity

Capital Investment

Keys

Conservative Government/Stephen Harper

• Key Quotes from Canadian Manufacturing Association• Those include removing import tariffs and accelerating tax writeoffs on new

machinery and equipment, cutting the corporate tax rate from 22 per cent to 15 per cent, inking free trade agreements with Europe and others, and establishing strategic investment funds.

Government Policies

• Hydro Rates

• Infrastructure spending

• Payroll Taxation (ORPP, CPP, EI)

• Innovation funds (Jobs Prosperity Fund, Aerospace, Automotive, etc)

• Carbon Taxation

• Environmental Assessment (Federal/Provincial)

• Corporate Taxation

• Property Taxation

• Development Fees

Business Key Quotes

• Magna says no new plants for Canada, cites Ontario energy costs (Ontario energy, pension costs a concern, the company says)

• Chrysler Canada - Windsor officials are echoing the sentiments of Fiat Chrysler Automobiles CEO Sergio Marchionne, who voiced concerns Friday that the province’s hydro costs, pending pension plan and a cap-and-trade system are making Ontario too expensive for business.

• The NIER Program assists Northern Ontario’s largest industrial electricity consumers to reduce energy costs, sustain jobs and maintain global competitiveness. Tembec has participated in the program since 2010, which has supported more than 1,000 direct jobs across Tembec’s operations in the communities of Kapuskasing, Cochrane, Hearst and Chapleau. The NIER program provides relief against fluctuations in the electricity market price, with the requirement to develop and implement an energy management plan to manage their energy usage and reduce costs.

• Peggy Brekveld, a vice-president at the Ontario Federation of Agriculture (OFA), said farmers have pitched for a special farming industrial electricity rate in Ontario, but with no luck so far. Electricity has been one of their largest input costs, leaving them scrambling to compete, she said. “You want farmers in the province. You want farmers to stay. It’s about food security. It’s about food being local and close by,” Brekveld said. “But when we have to charge more in order to stay in business then you’re going to see more exports coming in. And you’re going to get your food from Mexico.”

What’s is required for Canada

• Private sector has to invest in R&D and skills development

• Government• Cap Hydro Rates

• No new taxation (ORPP/Carbon Tax)

• Key infrastructure investment that support exports

• Targeting skills and training funds to support advance manufacturing

• Expand Trade and Investment Deals

• Reduce the time required for environmental assessments