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Managerial Accounting: Cost Control Strategies at Howell Instruments, Inc.

Explore cost control strategies employed by Howell Instruments, a TX-based aerospace electronics firm, to manage expenses and enhance profitability. Learn about cost monitoring, influencing factors, and tactics utilized to reduce production costs. Discover the significance of standard cost accounting and how it impacts the company's operations.

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Managerial Accounting: Cost Control Strategies at Howell Instruments, Inc.

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  1. University of Texas At Arlington Managerial Account - Cost Control Dr. Martin Taylor Team 7 (Boeshart/Sharipova/Alexander/Spencer) February 3, 2014

  2. Agenda • Cost Control • Company Overview • Accounting Measure • H9200-XXX Oil Pressure Indicator • Why does this indicator cost $11,940.28? • H9900A-XXX Fuel Flow Indicator • How we reduced our costs to $3,279.99 • Conclusion

  3. Cost Control • Primary purpose is to influence the factors that create cost and to control those costs. • Starts by the business identifying what their costs are and evaluating if those costs are reasonable and affordable.

  4. Included in Cost Control • Influencing factors that create changes to cost baseline • Ensuring that requested changes are agreed upon in different company segments • Managing actual changes when they occur to ensure a positive outcome • Assuring that potential cost overruns do not exceed total funding for the project

  5. Included in Cost Control (Cont.) • Monitoring cost performance to detect and understand variances from the cost baseline • Recording all appropriate changes accurately against the cost baseline • Preventing incorrect, inappropriate, or unapproved changes from being included in the reported cost or resource usage • Informing appropriate stakeholders of approved changes • Acting to bring expected cost overruns within acceptable limits and to decrease cost.

  6. Howell Instruments, Inc. Engineering • Privately held small business founded in 1951 • Fort Worth, TX HQ’s with 117,000 SF engineering, manufacturing & production facilities • Aerospace electronics expertise: cockpit instrumentation, engine health monitoring, jet engine test equipment & data acquisition systems Manufacturing Fabrication Quality Control Field Services Sales Administration Maintenance

  7. Howell Products Engine Testers Monitors Indicators

  8. Manufacturing Overhead X-ray Machine HALT/HAS Component Storage Solder Reflow Oven

  9. Manufacturing Overhead Laser Engraver Injection Molding Machine CNC Lathe CNC Fabrication

  10. Manufacturing Overhead PCB DEK Solder Screen Printer Metal Fabrication Machine Shop

  11. Selling, General & Administrative

  12. Standard Costs • Howell Instruments utilizes a Standard Cost accounting method, which is a predetermined cost for materials and for labor during normal operations Material Costs Labor Costs Overhead Costs Inspectors Assemblers Machinists Painters Technicians Building Equipment Utilities Prod. Salaries Maintenance SG&A Certification Costs Engineering Resistors Capacitors PCB’s Wire And other direct materials

  13. Accounting Measure ** Fixed Cost NOT Controllable by Managers PMOH = Predicted Manufacturing Overhead PSG&A = Predicted Selling, General and Administrative

  14. H9200-XXX Indicator • 2000 Technology • High Cost of Production • Time 15.19 hours • Material $2008

  15. H9200-XXX Indicator Time and Materials is controllable by Managers Fixed Rates not controllable by Managers

  16. H9900A-XXX • 2012 Technology • Low Cost of Production • Time 5.35 hours • Material $375

  17. H9900A-XXX Reduce Direct Labor Hours and Materials Reduces Sales Price $8660.29 Savings!

  18. Conclusion • Operationally we cannot control MOH and SG&A • We manage the costs that we can control • Direct Labor Hours • Direct Materials Price • Expansion into new Markets Quantity Demanded

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