This page contains a Flash digital edition of a book.
INDUSTRY NEWS


LETTER TO THE EDITOR Industry Veteran Recommends Charles Horngren Accounting Model


Dan Marcus’ column, “I Take It


Back” (Modern Casting, December 2014), was interesting. I write this on my 40th anniversary in the foundry industry. Seeing the industry shrink by approximately 70% in number of busi- ness units has to make one wonder, why did the present active foundries survive and prosper and so many go away? In the case of captive foundries, who, in large numbers, have gone by the wayside, it has been C Level fi nancial types who have not wanted to invest capital in modern equipment because of lack of ROI. T e second reason for abandonment was the de- sire to reduce legacy cost long-term. In some cases, off -shoring savings have never fallen to the bottom line. T ey merely have been a path to promotion at the next job. Coming from a CPA fi rm in 1975,


I knew I did not understand the foundry industry. Benton Foundry, Benton, Pa., was a 22-ton/day facility that shrunk 18% to 18-ton/day the year after I joined because of typical cyclical slowdown and predatory pric- ing by local Pennsylvania foundries. We had no accounting system, so there were no bad practices or any bad habits. T at provided a great oppor- tunity to get away from the standard costing of the day and design a system from inception. Charles Horngren was a Stanford


professor who devoted his life to accounting in a good way. He was the advocate for direct costing that eventually turned into activity-based accounting. He took you through the nuances of standard cost accounting. He did this so students would be able to handle the then prevalent world of standard costs with its model driven off of direct and indirect labor costs. In my mind, both of these concepts are fl awed, cumbersome and not the way to evaluate foundries. In the 1970s, the basic jobbing iron cost model was approximately one- third iron, one-third labor and one- third repairs, maintenance and supplies. Add to that G&A and profi t/loss. As the industry modernized, the one-third


November 2015 MODERN CASTING | 19


labor that we used to allocated overhead rates shrunk. T at 33% might be cut in time to 20%. So, now, if you had previ- ously had a 1-to-1 relationship of the total of indirect and direct labor to re- pairs, maintenance and supply, now you had a ratio of 1 to 2. As we have gone


into 2015, some of leverage ratios of 1 to 4 or more exist. T us, you estimate $4 of cost based on the accuracy of your knowledge of $1 cost of labor. In the 1970s, a $1 million/year job- bing operation could generate enough


Continued on p.21.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100  |  Page 101  |  Page 102  |  Page 103  |  Page 104  |  Page 105  |  Page 106  |  Page 107  |  Page 108  |  Page 109  |  Page 110  |  Page 111  |  Page 112  |  Page 113  |  Page 114  |  Page 115  |  Page 116  |  Page 117  |  Page 118  |  Page 119  |  Page 120  |  Page 121  |  Page 122  |  Page 123  |  Page 124  |  Page 125  |  Page 126  |  Page 127  |  Page 128  |  Page 129  |  Page 130  |  Page 131  |  Page 132  |  Page 133  |  Page 134  |  Page 135  |  Page 136  |  Page 137  |  Page 138  |  Page 139  |  Page 140  |  Page 141  |  Page 142  |  Page 143  |  Page 144  |  Page 145  |  Page 146  |  Page 147  |  Page 148  |  Page 149  |  Page 150  |  Page 151  |  Page 152  |  Page 153  |  Page 154  |  Page 155  |  Page 156  |  Page 157  |  Page 158  |  Page 159  |  Page 160  |  Page 161  |  Page 162  |  Page 163  |  Page 164  |  Page 165  |  Page 166  |  Page 167  |  Page 168  |  Page 169  |  Page 170  |  Page 171  |  Page 172  |  Page 173  |  Page 174  |  Page 175  |  Page 176  |  Page 177  |  Page 178  |  Page 179  |  Page 180