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Submitted by narroyo519 on 06/30/2008 05:21 PM
- Category: Business
- Words: 310
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Bill French
· ABC and the solution set to John Deere was covered in depth.
· It is important to remember that ABC is not bulletproof and does not fit everyone (see Bala's paper in the Reader for further insight).
· The reason ABC has become a solution for cost management is due to the change in business environment (today overhead costs could be 40-95% of the cost, compared to for example 20% in the 1970's)
· The setup cost under ABC. Remember to locate the right profitability drivers. Example: It is the same work/cost to set up a machine producing 998 or 2 units. Therefore it is wrong to allocate overhead cost to a machine setup based on volume produced.
· Southwest. Southwest is successful because of well-managed costs. All their planes are 737, same engines (low maintenance costs), one type of pilots, multifunctional personnel. One risk associated with this setup could be a fatal failure in all 737 engines. In this case, Southwest would have no planes in stock.
· Southwest is like a simple screwdriver. It does not come in all forms/alternatives. It does not fit everyone; however, for the vast majority of the customers it does the job and it is low cost.
· For a business to be successful, it is highly important to segment the products that are profitable and the products that could be outsourced. ABC helps us do this.
· HOTEL analysis: Do you want to invest in a hotel with the following characteristics: 400 rooms, $90 per room per day, $10 variable cost per room, $1M fixed costs per year. The final answer: It could be a good investment if the occupation rate is close to 100%, but what is the actual breakeven point?
· 3 Models were discussed:
Model 1: Q(star)=Fixed/(rent-variable)
Model 2: Q(star)=(Fixed+Opportunity cost)/(90-10)
Model 3: Q(star)=(Fixed+pretaxed profit)/(90-10)
In Model 3 one is...
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