I - Cost of Sales: Specific points

1. Example of the calculation of non-proportional production costs for a multi-products workshop

1.1. Assumptions

At the end of 2004, a production line shows an average net OEE of 81%.

It is used to produce the 5 following products with the following maximum daily capacities (MDC) and sales breakdown in 2004:

Total production in the workshop during the year was 33,700T.

The non-proportional costs of the workshop amounted to:

For simplification purposes it is assumed in this example that:

• The direct labor costs are proportional to the activity,
• Every product uses as much direct labor as the others,
• Maintenance costs are allocated to:

• Other costs are allocated to:

Non-proportional costs will be allocated to each product on the basis of the usage of the workshop.

1.2. Calculation of the standardized production of a multi-products workshop

The maximum daily capacity of each product considers that only this product uses the workshop. 

However, in order to calculate the workshop’s standardized production, it is necessary to weight the standardized production of each product by its sales.

Thus, while this workshop produced 33,700 T, it could have produced 48,102 T had there not been for a lack of sales.

1.3. Simulation of non-proportional costs at standardized production

It requires the variable portion of the non-proportional costs to be increased so as to reflect what the costs would be if the workshop operated at standardized production.

Reminder: the actual production was 33,700 T and the standardized production 48,102 T. The ratio between the two (r) is thus 1.43.

1.4. Calculation of non-proportional unit costs of each product

Amount of simulated non-proportional costs per day (m) of standardized production = 31,074 / 365 = 85.1 kEUR.