Material‑yield cost win
- DP Jadhav & Co shared a case where activity‑based costing and raw‑material yield fixes cut production costs by 12%. - The savings amounted to 'lakhs' per month and came from auditing material losses and allocating indirect costs properly. - The example underlines that material‑yield audits and accurate indirect cost allocation can materially lower conversion costs in precision shops. (x.com)
A manufacturing client of DP Jadhav & Co cut production costs by 12% after tracing overhead by activity and tightening raw-material yield, the firm said in a case shared on X. (x.com) DP Jadhav & Co describes itself as a Nashik-based cost-accounting and business consulting firm led by cost accountant Dhananjay Jadhav, with work focused on manufacturing, cost audits and process improvement. (dpjadhav.com) The fix combined two accounting steps. Activity-based costing assigns indirect expenses to the jobs and processes that actually consume them, instead of spreading overhead with a single broad rate. (accountingcoach.com) The second step was a material-yield audit, which checks how much input should become finished output and how much is being lost as scrap, rework or process waste. In cost accounting, yield variance measures whether actual material usage ran above the standard for the output achieved. (accaglobal.com) Traditional costing can bury those problems by loading overhead on labor hours or machine hours alone. OpenStax’s managerial accounting text says activity-based costing was developed to assign overhead based on the activities that drive it. (openstax.org) That matters most in precision shops, where margins can swing on small losses in metal, chemicals or machining time. If setup, inspection, engineering changes and scrap handling are misallocated, managers can underprice one part and overstate the profitability of another. (principlesofaccounting.com) Academic and teaching materials on activity-based costing make the same point: low-volume or more complex jobs often consume more setups, testing and engineering support than standard overhead formulas capture. Those extra touches raise true conversion cost even when direct labor looks similar. (accountingcoach.com) DP Jadhav’s post did not name the client or publish a full worksheet, so the claimed savings of “lakhs” per month cannot be independently reconstructed from public records. The firm’s description, though, matches standard cost-accounting practice: measure where material disappears, then charge indirect costs to the steps causing them. (x.com) The result was not a new machine or a new product line. It was a better map of where money was leaking out of production, and a 12% cost reduction once those leaks were priced and fixed. (x.com)
