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Budget and Cost model of a company

Presentation · November 2018

DOI: 10.13140/RG.2.2.32366.97604

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Anurag Kar
Czech Technical University in Prague
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Budgeting and Costing
Management, Economics and Finance

Anurag Kar
 Workstation Budget
1. Cutting, Material Preparation
Plasma Cutter [kCZK/y] 350.16 Industrial Saw
Quantity [n] 1 Quantity
Depreciations [kCZK/y] 16 Depreciations
Purchase costs [kCZK] 96 Purchase costs
Planned lifetime [y] 6 Planned lifetime
Operators [kCZK/m] 19 [kCZK/y] 248 Operators [kCZK/m] 20
No. of operators [op] 1 [op] 1 No. of operators [op] 1
Wage [kCZK/m] 16 [kCZK/y] 192 Wage [kCZK/m] 15
Social & Health Insurance [kCZK/m] 3 [kCZK/y] 36 Social & Health Insurance [kCZK/m] 5
Bonuses [kCZK/y] 10 Bonuses
Protective Equipment [kCZK/y] 4 Protective Equipment
Training [kCZK/y] 4 Training
Other Costs [kCZK/y] 2 Other Costs
Insurance 4.8 Insurance
Insurance rate [%] 5 Insurance rate
Maintenance [kCZK/m] 0.2 [kCZK/y] 2.4 Maintenance [kCZK/m] 2
Technical gases [kCZK/m] 2.5 [kCZK/y] 30 Technical gases [kCZK/m]

2/17/2020 2
 Distribution of Workstation Costs across entities
Workstation Costs Distribution [kCZK/year]
1800

1600

1400

1200

1000

800

600

400

200

0
Cutting, Material Bending, Stamping CNC Machining Painting, Labelling Assembly Expedition
Preparation
Depreciations Operators Insurance Maintenance Technical gases Tools Energy Space
2/17/2020 3
Distribution of Workstation Costs across entities
Workstation Costs [kCZK/year]

Expedition Cutting,
12% Material
Preparation
11% Bending,
Stamping
11%

Assembly
26%
CNC Machining
19%

Painting,
Labelling
21%

2/17/2020 4
Distribution of Workstation Costs across entities
Machine Depreciation Costs [kCZK/year]

Industrial
Plasma Saw
Cutter 6%
Painting Box 8%
19%

Hydraulic
Press
19%

CNC Machine
48%

2/17/2020 5
Shared Budget

2/17/2020 6
 Aggregate Budget
Aggregate Budget
Total Annual Budget [kCZK/y] 23288.74
Production [kCZK/y] 7958.74
Workshop [kCZK/y] 6498.74
Machinery [kCZK/y] 1933.24
Operators (15x) [kCZK/y] 4565.5
Production Department (3x) [kCZK/y] 1460
Non-Production [kCZK/y] 15330
Marketing and Administrative Division [kCZK/y] 4417.5
No. of employees 10
Production and Technical Division [kCZK/y] 10912.5
No. of employees 12
2/17/2020 7
 Hourly Cost Tariff (HCT)

Cutting, Material Preparation Bending, Stamping CNC Machining

Plasma Cutter Industrial Saw Press 1 Press 2 CNC 1 CNC 2
Cost [kCZK/y] 350.16 371.12 348.4 348.4 668.8 668.8
Capacity [hours/y] 1100 1400 1500 1500 1400 1400
HCT [kCZK/hour] 0.32 0.27 0.23 0.23 0.48 0.48

2/17/2020 8
Hourly Cost Tariff (HCT)
Production HCT [kCZK/hour]
Department
3%

Expedition Plasma Cutter

9% 11%

Assembly
8% Industrial Saw
9%

Painting Box Press 1

10% 8%

Press 2
8%
CNC 2
17%
CNC 1
17%

HCT Contribution Plasma Cutter Industrial Saw

Press 1 Press 2 CNC 1
CNC 2 Painting Box Assembly
Expedition Production Department
2/17/2020 9
City Scooter

2/17/2020 10
City Scooter
City Scooter

Production
Cost
12%

Material Cost
88%

2/17/2020 11
 City Scooter
Materials vs Production Cost [CZK/piece]
900
800
700
600
500
400
300
200
100
0

Material Cost Production Cost

12
2/17/2020
Micro Kick Board

2/17/2020 13
Micro Kick Board
Micro Kick Board

Production Cost
17%

Material Cost
83%

2/17/2020 14
 Micro Kick Board
Materials vs Production Costs [kCZK/piece]
700

600

500

400

300

200

100

Series1 Series2
2/17/2020 15
Off Road Skates

2/17/2020 16
 Off Road Skates
Off Road Skates
Production Cost
7%

Material Cost
93%

2/17/2020 17
 Off Road Skates
Materials vs Production Costs [CZK/piece]
1800.00

1600.00

1400.00

1200.00

1000.00

800.00

600.00

400.00

200.00

0.00

Skeleton Fastener Wheel Frame Finalisation Production

complet Department
Material Cost Production Cost

2/17/2020 18
 Contribution Margin Calculation
Contribution Margin
CS MKB OS CS MKB OS Total
1 pc. 1 pc. 1 pc. Total Total Total
Price 3500 2000 5000 3500 2000 5000 10500
No. of products 1 1 1 5000 14000 10000 29000
Revenues 3500 2000 5000 17500000 28000000 50000000 95500000
Direct variable costs 2286 1354 3344 11430000 18956000 33440000 63826000
CM1 1214 646 1656 6070000 9044000 16560000 31674000
Direct fixed costs 0 0 0 0 0 0 80000
CM2 1214 646 1656 6070000 9044000 16560000 31594000
Realistic allocation
of indirect cost
(HCT) 312 274 236 1560273 3835366 2355553 7751193
CM3 902 372 1420 4509727 5208634 14204447 23842807
Marketing,
Administration, X X X X X X
TechnicalSupport 15330000
Profit X X X X X X 8512807
Profit % 9.79%

2/17/2020 19
 Costs and Revenue

Costs and Revenue (per unit) Costs and Revenue

(for total volume)
12000
120000000

10000
100000000

8000
80000000

6000
60000000

4000 40000000

2000 20000000

0 0
Revenues Direct variable costs Realistic allocation of Revenues Direct variable costs Realistic allocation of
indirect cost (HCT) indirect cost (HCT)

CS MKB OS CS MKB OS

2/17/2020 20
 Contribution Margin

Contribution Margin (per unit) Contribution Margin

5000 (for total production)
50000000
4500
45000000
4000
40000000
3500
35000000
3000
30000000

2500
25000000

2000
20000000

1500
15000000

1000 10000000

500 5000000

0 0
CS MKB OS CS MKB OS

CM1 CM2 CM3 CM1 CM2 CM3

2/17/2020
 Measures to Increase Profit
1. Price of products
• Micro Kick Board
• Increase price
• In spite of being 14000 in volume MKB does not contribute significantly to the revenues and
reduction of price of OS will promote more sales

Increasing price of MKB by 10% (2000 → 2200 ) increases total profit by about 33%
(9.79% → 13.40%)

• Before • After
Contribution Margin Contribution Margin
(per unit) (for total production)
5000 50000000
4000 40000000
3000 30000000
2000 20000000
1000 10000000
0 0
CS MKB OS CS MKB OS 2/17/2020 22
CM1 CM2 CM3 CM1 CM2 CM3
 Measures to Increase Profit

2. Off Road Skates

• Improve process times
• OS has very high direct variable costs which can be reduced by efficient use of CNC machine
and Painting and Labelling station
• Reducing process times at CNC Machine by 20% (3.00 → 2.40 min) and at Printing and Labelling
station by 30% (3.00 → 2.10) increases profit by 4% (9.79% → 10.17%)
• Finding a cheaper supplier of wheel couplet to reduce material costs
• Reducing purchase cost of wheel couplet by 10% (1200 CZK → 1080 CZK) increases profit by 16%
(9.79% → 11.32%)

2/17/2020 23
 Measures to Increase Profit

3. CNC Machine
• Increase capacity
• CNC Machine has very high depreciation, energy and maintenance costs
• Increasing capacity of CNC Machines by 10% (1400 hrs/y → 1540 hrs/y) increases profit by 3.3%
(9.79% → 10.11%)

2/17/2020 24
 Profit after Implementing all Measures
• Increasing price of MKB by 10% (2000 → 2200 )
• Off Road Skates
• Reducing process times at CNC Machine by 20% (3.00 → 2.40 min) and at Printing and Labelling station by 30% (3.00 → 2.10)
• Reducing purchase cost of wheel couplet by 10% (1200 CZK → 1080 CZK)
• Increasing capacity of CNC Machines by 10% (1400 hrs/y → 1540 hrs/y)

After all the measures are implemented profit increases by 56.5% (9.79% → 15.32%)
Before After
Contribution Margin Contribution Margin
(per unit) (for total production)
5000 50000000
4500 45000000
4000 40000000
3500 35000000
3000 30000000
2500 25000000
2000 20000000

1500 15000000

1000 10000000

500 5000000

0 0
CS MKB OS CS MKB OS 2/17/2020 25
CM1 CM2 CM3 CM1 CM2 CM3
 Thank You
Anurag Kar

Anurag.Kar@fs.cvut.cz

©MAE 2018

2/17/2020 26

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