Overhead should be analyzed to determine its components so that we can identify what is wasteful.

So what is waste? Waste is anything other than the minimum resources of people, machines, or materials that add value to products.

Append below are some waste activities which should be identified for improvement the profit level and enable the organization to maintain competitive pricing:

• Scrap

( amount of unplanned material which is not recovered  and therefore disposed of.);

• Rework

( the dollars associated with correcting non-conforming product);

• Warranty

( the cost associated with items which are returned by a customer for correction of non-conforming product. Should include the expense to make the correction, replacement cost and freight);

• Machine downtime

( cost associated with unplanned or unexpected downtime. Should include the emergency maintenance cost and the lost of product cost);

• Purchasing lead times

• Long Set-ups

• Absenteeism

• Supplier deliquencies

• Change orders-Purchasing and Engineering

• Equipment imbalances

• Inspection backlogs

• Paperwork backlogs

If you found this post useful, keep updated with future posts by subscribing to FMAccounting (for free) through RSS or email.

Related Entries

• Overview Of Activity-Based Costing System
• Download E-Books
• Managing Payables (Creditors) - Checklist
• Steps In Implementing Activity-Based Costing System(ABC):
• Activity-Based-Costing System (ABC): Introduction And When It is beneficial