DBC Analysis for Current Tint Intermediate
The white tint intermediate, comprising close to 1000 gallons a year, is one of the largest volume tints manufactured and utilized by Elcho Paint Co. The DBC model for the white tint intermediate with a standard batch size is shown in Figure 2. The A margin level includes only costs related to raw materials and containers holding raw materials, which are generally included in product costs if they are from an outside supplier. The conversion costs for raw materials that contribute to the A margin given in Figure 2 are due to transaction costs. Intermediates, which are made internally, will each have a conversion cost due to labor involved with a container change (batch vessel to pails or drums) incurred for warehousing.
FIGURE 2 The B margin level costs include manufacturing costs and those costs related to fill-out and warehousing the finished goods or intermediates. Rates for each process are used to calculate conversion costs. These rates are determined in a variety of ways. For example, the “Batch Making” rate in units of mill hours is determined by using the total cost for milling, labor hours …show more content…
In addition to the white tint intermediate, another large volume color is black. Elcho Paint Co. also produces approximately 1000 gallons annually of the black tint intermediate. If the black tint intermediate would provide a considerable cost savings to displace the loss of savings by the white, Elcho Paint Co. could still consider outsourcing both materials. Also, the company could consider outsourcing some, but not all of their tint intermediates. Keeping some intermediates in-house that have lower manufacturing or conversion costs may prove beneficial. Analysis for all tint intermediates, in all of the series, should be considered to fully understand if outsourcing would provide a cost savings and reduction in
The white tint intermediate, comprising close to 1000 gallons a year, is one of the largest volume tints manufactured and utilized by Elcho Paint Co. The DBC model for the white tint intermediate with a standard batch size is shown in Figure 2. The A margin level includes only costs related to raw materials and containers holding raw materials, which are generally included in product costs if they are from an outside supplier. The conversion costs for raw materials that contribute to the A margin given in Figure 2 are due to transaction costs. Intermediates, which are made internally, will each have a conversion cost due to labor involved with a container change (batch vessel to pails or drums) incurred for warehousing.
FIGURE 2 The B margin level costs include manufacturing costs and those costs related to fill-out and warehousing the finished goods or intermediates. Rates for each process are used to calculate conversion costs. These rates are determined in a variety of ways. For example, the “Batch Making” rate in units of mill hours is determined by using the total cost for milling, labor hours …show more content…
In addition to the white tint intermediate, another large volume color is black. Elcho Paint Co. also produces approximately 1000 gallons annually of the black tint intermediate. If the black tint intermediate would provide a considerable cost savings to displace the loss of savings by the white, Elcho Paint Co. could still consider outsourcing both materials. Also, the company could consider outsourcing some, but not all of their tint intermediates. Keeping some intermediates in-house that have lower manufacturing or conversion costs may prove beneficial. Analysis for all tint intermediates, in all of the series, should be considered to fully understand if outsourcing would provide a cost savings and reduction in