Welcome to the deep dive. Today we're going deep on injection molding cost accounting.
Ooh, sounds exciting.
It is. It might sound a little dry, but trust me, it's way more interesting than it sounds.
I believe it.
Especially if you're thinking about investing in a manufacturing business like you are.
Yeah, it's really like learning the secret language of manufacturing profitability.
That's a great way to put it.
And this deep dive is kind of like your crash course.
I like it. So we're looking at this article called what key details should you focus on in injection molding Machine cost accounting.
Right. And it really breaks down those costs you might not even realize are they're kind of lurking beneath the surface.
Yeah, those hidden gotchas. Right. We want to help you avoid those financial surprises down the line.
Absolutely.
So let's start with something I think we can all relate to. Those always changing raw material prices.
Right. It's like budgeting for groceries, you know, when the price of avocados is all over the place.
Haha. So true.
That's raw materials in manufacturing.
Makes total sense.
And the article even highlights this with like a story about a sudden price hike that really messed up a project.
See, that's what makes this so real.
Exactly.
It's not just theory. These price swings can really impact your budget.
Yeah, for sure.
Now, on top of those price swings, the article mentions something called material loss rate. What's that all about?
Think of it like this. You buy, let's say, 100 kilograms of clay to make pottery, but, you know, inevitably some ends up on the floor. Unusable.
Right.
It's the same idea with injection molding.
Oh, interesting.
You're going to lose a percentage of that raw material in the process. And the article says it could be around 10%.
Wow. So you're basically paying for material you can't even use.
Yeah, basically.
That's got to be a huge part of your cost calculations.
Oh, absolutely. It's like having a silent partner who's taking a cut of the profits if you don't account for it.
Yikes. So the article suggests using something called a weighted average method to kind of smooth out those price fluctuations. What's so special about that?
Well, it's a little, you know, more complex than just averaging prices over time.
Okay.
It gives more weight or importance to the prices of the larger purchases you make.
Interesting.
So it makes your estimates more accurate, more reflective of your actual spending.
So bigger orders have a bigger say in the average.
Exactly.
Okay, that makes sense.
Yeah.
But let's move on to another piece of this puzzle. Labor costs.
Okay.
It's not as simple as just, you know, how much you pay per hour, is it?
It's really about accurately tracking those hours.
Yeah.
And then allocating them to the right products.
Right.
The article compares it to herding cats.
Uh huh.
It could be that chaotic trying to stay on top of everything.
Yeah, I can see that. Especially in a busy manufacturing environment.
Absolutely.
What kind of things can trip people up with that, with tracking the labor?
Well, even small oversights can have big consequences.
Oh, I bet.
Like, for example, the article talks about someone forgetting to include special mold debugging hours. And that threw off the entire cost calculation for a product.
Wow. Every minute counts.
Absolutely.
But once you've tracked all those minutes, how do you actually figure out which product gets assigned which cost?
Right. And that's where this allocation comes in.
Okay.
So imagine you've got employees working on three different products.
Okay.
You need to figure out how much of their time and their cost goes into each one.
Right.
The article has a handy table to illustrate this.
Right.
Let's say product A takes 50 hours of labor, product B takes 30, and product C takes 20.
So you basically split the labor cost proportionally with product A taking the biggest piece of the pie.
Exactly. This ensures each product carries its fair share of the cost burden.
Gotcha.
And this leads us to a kind of a secret expense that the article talks about.
Ooh, secret expense. I'm intrigued.
It's this thing called equipment depreciation.
Okay, I've heard of that, but tell me more.
So think about it like this. You buy that shiny new injection molding machine, like a car. Right. It's going to lose value over time.
Right. Makes sense.
Depreciation is accounting for that loss, spreading the cost over its useful life.
So it's like a slow and steady drain on your budget that you need to factor in.
Exactly.
Okay. Now, the article talks about different methods for calculating depreciation.
Right.
One of the key ones.
So there's the straight line method.
Okay.
Which is kind of like running a marathon at a steady pace.
Keep going.
You spread the cost evenly over the equipment's lifespan.
Okay, Makes sense. So nice and steady.
Right. And then you've got the double declining balance method.
Yeah.
The article describes it as more like sprinting at the start of the race.
Gotcha. So it depreciates, gets faster early on and then slows down.
Exactly. Now, to really wrap your head around how this impacts your bottom line, let's look at an example.
Perfect. I love examples.
So let's say you have a machine worth 500,000 yuan with a lifespan of 10 years.
Okay.
Realistically, after those.
So with straight line, you just divide that by 10, giving you 45,000 yen annually.
Exactly. But here's the thing. That 45,000 needs to be factored into the cost of each product you make on that machine.
Oh, wow.
So let's say you produce 15,000 units in a year. That's an extra 3 yuan per unit.
That's huge. It really puts those accounting terms into perspective.
Yeah, for sure. And it's a cost that can really sneak up on you if you're not careful.
Yeah, a hidden cost for sure.
And this brings us to the final piece of the puzzle we'll talk about today, which is allocating those mold costs.
Okay, I'm all ears.
It's all about figuring out how much each product contributes to the cost of the mold used to create it.
So it's not just the initial cost of the mold, but also factoring in repairs and maintenance over time.
Right. Think of it like you buy a cake pan to bake a hundred cakes.
Okay.
The cost of the pan needs to be spread out over each cake. Right? Right. But what if you need to repair the pan halfway through?
Ah, you'd have to recalculate the cost to bake each cake.
Exactly. So the cakes after the repair would be technically more expensive.
Interesting.
And the article gives a great example of this. So a mold designed for 100,000 units, it needed repairs unexpectedly, and this pushed the cost per unit for the remaining products up to 2.5 yuan each.
Wow, that's a hidden cost popping up out of nowhere.
Exactly.
But by understanding this allocation, you can kind of plan for these things and adjust your pricing accordingly.
Absolutely. You're essentially building a buffer into your budget.
Makes sense. Now, we can't forget about another cost that's often overlooked, and that's energy.
Right.
I imagine those big injection molding machines use a lot of power.
They do.
So how do energy costs factor into all of this?
It's not just about the total amount of energy you're using.
Okay.
It's about understanding how much each product contributes to that energy bill.
Okay.
This gets really interesting when you've got, you know, machines with different energy saving features.
Oh, right. So you might have a super efficient machine making some products and then an older, less efficient one for others.
Exactly. So this is where accurate measurement becomes super important.
You need to know which ones are guzzling energy and which ones are sipping it.
Exactly. We're going to Dive way deeper into those energy costs and what you can do strategically with that in the next part of our deep dive. But first.
Sounds good.
Let's just quickly recap what we've talked about so far.
Yeah, we've covered a lot.
So we started with fluctuating raw material prices and that, you know, sneaky material loss rate.
Yep.
Those are things you just can't ignore when you're calculating your costs.
Right.
Then we talked about tracking labor meticulously.
Right. Every minute has to be accounted for and assigned to the right product.
Exactly. And then finally, we uncovered those. Those secret expenses.
I love that.
The secret expense, like equipment depreciation and mold cost allocation.
Right. And those energy hogs we talked about.
Yeah, they're all part of the story.
It's amazing how those details can really break you.
It really is.
But before we move on to part two, what do you think is the most common mistake people make with injection molding cost accounting?
Hmm. That's a good question. I'd say it's underestimating the impact of these, you know, seemingly small details.
Yeah. People focus on the big ticket items, like the machine itself, and forget about the hidden costs that chip away at their profits.
Like overlooking the fine print. You know, it can come back to bite you.
Great analogy. It's like detective work. You have to look for those clues.
Absolutely.
Awesome. We're going to take a quick break and be back in just a minute with part two, where we'll dive even deeper into energy costs and some more of these strategies.
It's going to be good.
Be sure to join us. Welcome back to the Deep Dive. Before the break, we were getting into how energy cost can be kind of a sneaky factor in all of this, especially when you have different machines, some more efficient than others.
Right. Yeah. It's like having a fleet of cars. You know, some are gas guzzlers, some sip fuel. Makes sense you wouldn't calculate your travel expenses the same way for all of them.
Right. So with energy costs in injection molding, it's not just about looking at your total monthly bill. Right?
No. You got to get granular, you know, break it down.
So how much energy each product uses.
Exactly. And that's how you price things accurately. Find places to be more efficient.
Okay, so let's say you have two machines.
Okay.
One's like, from the stone age, and the other's brand new, super energy efficient.
Right.
How do you even begin to figure out the energy cost for, say, one specific product made on each data, my.
Friend got to track that Energy use. Okay, ideally you want a system tied to each machine and to specific production runs.
So like a Fitbit for each machine?
Uh huh. Love that. See how much energy each workout takes.
But just like fitness data's no good unless you act on it, Right?
So what can we do with this info once we got it?
Well, for example, if you see one machine's a total energy hog, you might prioritize running the new, more efficient one more often, right?
Absolutely. And if you have to use the energy hog for a long run, you know that product needs a higher price to make up for it.
Like those energy star ratings. But for your whole factory.
You got it. And it's not just for you internally.
What do you mean?
This data's ammo when you're talking to energy suppliers negotiating contracts.
So if you're a good energy citizen, you get a better deal.
It's all about showing them predictable use. You're committed to efficiency.
I like it. Makes sense. Now, remember how we talked about labor cost being tricky to allocate?
Oh yeah, it's a beast.
The arc will dives deeper into that. Gives some advice.
Good. We need it.
It's not just about, you know, total labor cost divided by hours worked.
Nope. Gotta be smarter, right?
Gotta get way more specific.
So they suggest this thing. Activity based costing abc.
Catchy.
Sounds fancy, but it's actually pretty logical once you get it.
So how does ABC work? Like in our injection molding world.
Here, let's say you're making, I don't know, a toy car. I'm picturing it several steps, right? Molding the body, putting wheels on paint, package it up.
Yeah, totally.
ABC says assign costs to each CH.
Activity, not just lump all the labor together.
Right. Based on how many resources each step uses. Okay, I'm so maybe wheel assembly is a huge time suck. Who knew?
Now you can look into that. Maybe new tools, even redesign the car so it's easier.
You got it. ABC shines a light on where your.
Labor'S really going, makes those decisions data driven, not just guessing.
Exactly. Like those time tracking apps. But for your whole operation.
Uh huh. Love that. Now speaking of tracking, let's go back to depreciation.
Back to our marathon and sprint.
Right, but like choosing between those methods, how does that really affect a business?
Ah, that's where the strategy kicks in.
Ooh, getting fancy.
Depends on a few things. Taxes, how long you expect that equipment to last, your financial goals overall.
So not just a pick one and done kind of thing.
Yep. Gotta be smart about it. Give me an Example, say companies like minimize our taxes now while this machine's new.
Okay.
Double declining balance is their friend.
Because they're deducting more expense upfront.
Bingo. Less taxable income right away. But if they want steady, predictable expenses.
Straight lines, the way to go.
Exactly matching your method to the bigger strategy, you know?
So like picking the right financial tool for the job.
Uh huh. Exactly. Okay. He's a hammer for everything.
Now, before we wrap this part up, back to negotiating with suppliers.
Always got a haggle, right?
How does knowing your costs so well help with that?
Leverage, my friend. You know, your break even for each.
Product means you know, the wiggle room, what you can budge on.
Exactly. Not just tossing random numbers out.
Data backs you up.
Like buying a car if you know what the dealer paid.
Oh yeah, you can haggle better.
Same here. Supplier says price of this thing's going up, you're like, whoa, hold on, I know that'll kill my profit.
Solid ground to stand on.
And the opposite too. Maybe a higher price is okay if the quality is way better or delivery's.
Faster because you see the value of that to your business.
You got it. Informed decisions, that's the key.
It's like speaking the language of business fluently.
Now, right now, this all ties into that big decision. Make it ourselves or pay someone else.
In house versus outsourcing.
And knowing your costs is key here.
Okay.
Why you can truly compare, see the real cost of each option, not just the obvious stuff.
So we might think it's cheaper to outsource?
Yeah, at first glance.
But then shipping, quality control, all that adds up.
And sometimes doing it yourself is actually.
Cheaper, but you gotta have the numbers to prove it.
Exactly. It's like, think hiring a pro's expensive. Wait till you hire an amateur.
Uh huh. Oh, so true.
Gotta have that 360 degree view, not tunnel vision.
And that's where injection molding, cost accounting really steps up.
It gives you the framework, helps you understand this web of costs, how they affect everything.
Like a map so you can find your way to profitability.
You got it. And remember, this ain't a one time thing.
Always got to be monitoring, tweaking, staying sharp.
The business world's always changing. Got to keep up.
Well, we've covered a ton in today, from the tiny details to the huge strategic stuff.
Yeah, it's been a journey.
And I got to say, what I thought would be boring is actually fascinating.
Cost accounting more exciting than you think.
Right? And it's given us a real sense of how powerful it can be.
Hope our Listeners feel the same, ready to tackle their own analysis.
They got this. Thanks for joining us on this Deep Dive. We'll be back soon with another exciting topic.
Until then, keep crunching those numbers.
All right. Welcome back to the Deep Dive. We're wrapping up our look at injection molding, cost accounting.
Yeah, few. We've been through a lot, haven't we?
We have. From like, tracking every minute someone works to these big strategy questions about, you know, depreciation and making sure we're using energy wisely.
It's all connected, though, right?
It is. And I gotta say, I thought this would be dry, but it's actually fascinating to see how all these little pieces affect the big decisions a business has to make.
That's what I love about cost accounting. It's not just numbers on a page. It's like insight into how to make the whole operation better.
Okay, so let's talk pricing. How does knowing your costs in such detail affect the way you price your products?
It's gotta be more than just, oh, add 20% on top and call it a day.
Right, Right. So simple markups, they might work sometimes, but when you really understand your costs, you can get way more, I don't know, targeted with how you set prices.
Absolutely. It's like tailoring the price to each product, not just a blanket approach.
So if we find out product A uses way more energy than product B to make, we adjust the markup on A to reflect that.
Bingo, you're pricing the actual resources. It takes the effort.
This also gives you more flexibility if, like, the market throws you a curveball.
Oh, yeah. Like what?
Raw materials spike in price? Happens all the time.
Okay. Yeah. So what do you do?
Well, if you know your costs really well, you can choose up the price, maybe eat the cost temporarily, or even find a different material altogether.
It's like having more tools in your toolbox.
Exactly. Not just stuck with one option.
Now, this can even guide which products you make at all. Some products, even with a high markup, might just be too expensive to make, period.
So cut those loose. Focus on what's profitable.
Like, gotta prune the garden so the good stuff grows.
I like that. Now, back to negotiating with suppliers. Remember we talked about that?
Oh, yeah, that's key.
It feels like knowing your costs so well would make you a much tougher negotiator.
You're not just guessing. You're walking in there like, yeah, here's what I need. Here's what I can budge on. Take it or leave it.
It's like you're speaking Your language, it is a language.
The language of knowing your business.
And this brings us to that other big decision. Make or buy?
Ooh, big one.
Do we make it ourselves or outsource?
Gotta know your costs. No way around it.
So why is that so crucial for this decision?
Because you can compare the real cost.
Of each option, not just what someone quotes you.
Right? Gotta factor in everything. Shipping, quality, even the risk of losing some control when someone else is making it.
So on the surface, outsourcing might seem cheaper, right?
Until you add it all up.
Sometimes DIY is the way, but only the numbers will tell you for sure.
Exactly. It's like that saying, cheap work ain't good. Good work ain't cheap.
Gotta balance it out.
And this is where cost accounting really shines. It gives you that full picture.
You can see all the factors, the hidden stuff, and then decide.
It's like having a map so you don't get lost on the road to making money.
Okay, last question. We've done a lot of exploring here. Is cost accounting something you do once and you're done?
Oh, no, no, no. Got to stay on top of it.
What do you mean?
Business changes all the time, so got to keep monitoring your costs, analyze what they're telling you and adjust.
So it's a constant process.
It's a mindset. Got to be curious, got to learn, got to adapt. That's how you win.
I like it. Well, I think we've officially unpacked injection molding cost accounting. We got through it from the tiniest detail to the big picture strategy stuff.
And hopefully our listeners are now cost accounting ninjas.
They're ready. Thanks for joining us on the deep dive, everyone. We'll be back soon with more deep dives into fascinating topics.
Stay curious out