Smart Costing - Nicole Thibodeau

Smart Costing
Fuel to Grow Sales,
Profit and Cash Flows
Institute of Management Accountants / Pacific
University
March 17, 2015
Hillsboro, OR
Nicole Thibodeau, CPA, PhD
Associate Professor, Pacific University
President, Nthandco Management Consultants
Cell: 831-421-2833
Want to know more about how “SMART” Costing can
increase revenue, profits and cash flows?
Contact Nicole
855-684-2632 / Cell: 831-421-2833
[email protected]
www.nthandco.com
To read Nicole’s Notes and Subscribe, click here.
© 2015 Nicole Thibodeau – All Rights Reserved
Why?
• Pricing or make Make/Buy decisions
using full (GAAP) unit cost?
• Pricing using a preset gross margin or
markup % on each product?
• Leaving sales on the table?
• Sales growing? Profits growing with
sales?
© 2015 Nicole Thibodeau – All Rights Reserved
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Profit$
Fuel Booster
N
Leverage
E
W
Sale$
S
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How does a Business make money?
•Value, Customer, Sales, Marketing
•Value Stream
•R & D
•Support, Operations
•Accounting/Finance?
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5
Strategy and Execution – Leverage
Impact: Sales, Costs, Profits and Cash Flows:
• Top line: Sales Mix, Pricing, Bids, Product Mix
• Purchasing: Make or Buy
• Workforce: Hire or contract
• Working Capital and Investing: Lease or Buy
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GAAP Income Statement
Sales Revenue
(CoGs)___________
= Gross Margin
(Operating Costs)__
Operating Income (EBIT)
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How Do Companies Really Make Money $?
(Price – Variable Cost) X Sales Units =
Total Revenue
Less: Fixed Manufacturing and Operating Costs
= Operating Income (EBIT)
© 2015 Nicole Thibodeau – All Rights Reserved
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Contribution Margin (CM)
Price – Variable Cost
= Unit Contribution Margin
• How many $$$ left on the table from each sale
= Actual dollars left over to cover all Fixed Costs
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Variable Costs
•Incurred with Each Sale
•Not just manufacturing
•Only incremental
•Includes commissions, freight …
•Labor is “sticky”, variable at the tail ends
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Where are the Fixed and Variable Costs?
Fixed
Variable
CoGs:
Materials
Direct Labor
Overhead
Operating Costs:
Sales and
Marketing
R&D
Administration
Admin. Deprec.
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11
Example – Making Widgets
Pricing and Make or Buy, Data (See Board)
Questions
1 - Everything else equal, assuming you have capacity, sell $1,000 units at
$120, $80, $60
2 - Should you buy the widgets instead, given:
$80, $60, $20
Impact on profits, Cash flows?
© 2015 Nicole Thibodeau – All Rights Reserved
12
GAAP Cost Allocation
• Designed for accountability (past)
• Misleading for moving forward, decisions
• Driving with the wrong directions
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13
GAAP Income Statement
• Designed for external users
• Not designed for decisions
• Not transparent of business model
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SMART Costing Shows Business Model
Price – True “Variable” Costs =
Unit Contribution Margin X Sales Volume
= Total Contribution Margin
(Fixed Manufacturing & Operating Costs)
= Operating Income (EBIT)
© 2015 Nicole Thibodeau – All Rights Reserved
15
SMART: Look Forward, Beyond Lean
S
Strategic and Simple
M
Manageable and Measurable
A
Accountable and Aligning
R
Real time and Real results
T
Transparent and Timely
© 2015 Nicole Thibodeau – All Rights Reserved
Does SMART Costing Work?
Mindset, Systems, Real Results, E.g.:
• 30% Year-to-year Sales Growth in First Quarter;
• Double the impact of sales on profits.
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Summary: Smart Costing
What?
GAAP looks back, SMART Costing looks forward
How?
Beyond Lean, Real Costs, Real, Contribution Margin
Strategy, Decisions:
Sales Mix, Pricing, Make-Buy, Investing, Working Capital
Grow:
Revenue, EBIT, Cash Flows
Where?
All industries, not exclusive to manufacturing
© 2015 Nicole Thibodeau – All Rights Reserved
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Conclusion - Driving Results?
1.
2.
3.
Do you know how much money is left over from
each sale to cover fixed costs?
Are you leveraging your accounting information to
move forward?
Are You working with marketing and operations to
grow?
© 2015 Nicole Thibodeau – All Rights Reserved
19
Want to know more about how “SMART” Costing can
increase revenue, profits and cash flows?
Contact Nicole
855-684-2632 / Cell: 831-421-2833
[email protected]
www.nthandco.com
To read Nicole’s Notes and Subscribe, click here.
© 2015 Nicole Thibodeau – All Rights Reserved