Manufacturing Technology Cornerstone of a Renewed Defense Industrial Base (1987) / Chapter Skim
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Appendix B: Problems in Measuring Cost Reduction: An Example
Appendix B: Problems in Measuring Cost Reduction: An Example
Pages 34-36
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From page 34... ...
The following example illustrates the errors that arise from using existing direct-labor-based cost accounting systems to measure the cost reduction improvements resulting from a ManTech project. A plant produces several products only for DOD.
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From page 35... ...
The plant now has an overhead burden rate of $100 per hour, not the $90 assumed in the budget projection. This figure is computed as the ratio of the factory overhead costs of S28.8 million divided by the 288,000 actual labor hours worked (168,000 on the project receiving ManTech funds and 120,000 on all the other proJects)
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From page 36... ...
. While the setting has clearly been simplified to make a point, it should be obvious that cost savings computed using existing cost accounting systems cannot possibly provide a valid estimate of the savings in process efficiency from ManTech investments.
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