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  • Overhead Cost Defined

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    Overhead costs elude direct and allocated costs of labor and pur enasee materials. These costs 1$0 include re IS and 0 hor fadli es-related expenses such as energy and ty COStS.

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    Overhead costs elude direct and allocated costs of labor and pur enasee materials. These costs 1$0 include re IS and 0 hor fadli es-related expenses such as energy and ty COStS.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Als PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    44 Ansichten12 Seiten

    Overhead Cost Defined

    Hochgeladen von

    zackyzz
    Overhead costs elude direct and allocated costs of labor and pur enasee materials. These costs 1$0 include re IS and 0 hor fadli es-related expenses such as energy and ty COStS.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Als PDF, TXT herunterladen oder online auf Scribd lesen
    Markieren Sie unangemessene Inhalte
    von 12
    Harare Busnes Renew SeprrbecCeiber 1565 Overhead costs defined legible, marracuring ovemead's easy © dina. tues he Gree an soca ss hesed nas. rng nea oat ae ‘bret abo nc me wages Nasty warns sired nel arecty sorrbuie he ranvlecure ct A paver oatesnastng mosty cabo codest lometerats haan, aimenaree, gait cea eC Desenelaamnarason cox curing scary, Soic senneoyeneran sass Isheed evens anccorporte sat corse ie single gen conponet olor, ead ac bia cess Our cia sent at eneay stcouts for about ah ofthe ota oarulocurog (aso ayaca sar nthe ectonce ormschn cyano) o Enginoeong costs suc she saris f manta {uira cus, and cine rpneers sonceres wire coagn ancranenaroe a! the praicion o Natoras ommess.cost inceing thos relate c {he proaerners novere wn fh xaupton those shepfoermatoras handing cons legac tothe nafec or calgary anc toorinaton of tnihed prodive, hes cans ass ue nest foes bra, anise pane. nein ‘This Sous shonsthe average sition ot ese 05 categories nine fou aconcoseniave Saines None of tase tans kept ercwatioad ‘courts noxacy he eaon weave cosets Attough Mer Daceatagones were te are, ach eginveviade somewhat trey noreneatine {rdtaonom lor toopig aah eipone soos ave arene sonetert~anc conoanaoe— eto reroos we todo cotati ans em0n Tape Manvtacturing overhead sowteloments inthe elctranies industry ‘Another factor which lead to PTTT's net operating losses was its rigid organizational and decision making structures. As a result of this rigidity, PTTT was not able to moet changes within the industry with the flexbilty that would result in competitiveness. For instance, tin prices began to deciine in 1985. Only efficient producers were able to ‘compete in the conditions that resulted. The lowest cost producers succeeded in the world market. Even though the trend was clear, PTTT could not cut its cost to increase its competitiveness. For example, it was not able to reduce its unproductive labor force or dispose of its non-core businesses. As a state-owned company, such measures would rnead to be fully supported by the goverment. However, "Gaining poltical support was not ‘only time consuming but costly” said en analyst who closely observed PTTT's restructuring program. Another example of PTTT's inflexibility can be seen in its slow response to merkot trends. The world demand for tin, especially for tin plate, had shifted to low lead tin (¢ 100 ppm Pb). Countries which use tin had begun to realize that lead has toxic effects on the human body. Yet PTTT did not promptly respond to this shift in demana. Prior to the restructuring program, no significant investment had been made in the machinery and equipment that would be needed to produce low lead tin. The nature of PTTT's workforce also contributed to its operating losses. Prior to 1990, the company had a very large number of employees. Of the 24,000 people who worked for PTTT, less than half were cirectly involved in the production process. The company had developed into a bureaucratic and seriously over-siaffed enterprise. External factors also affected PTTT's performance. Since about 95% of the tin produced by PTTT was headed for international markeis, any disturbance in the market ‘would significanty affect PTTT. Besides an excess supply of tin, cther primary causes for the deterioration of the world market were the shift of the demand schedule for tin, and the substitution effect of other metals. Additionally, even though tin prices were depressed, PTTT's competitors still flooded the international market wth their product. This was ‘especially true of Brazil and China, who were relatively new entrants into the world tin market. In response to the changing situation, PTTT conducted @ restructuring program. It began in April of 1990. The mission statement and strategy of the company were changed. The primary purpose of the restructuring program was to guide the company through a series of cost reductions, which would ensure the company’s competitiveness in the future. Prior to 1990, the company's corporate strategy had basically been to produce enough tin to meet its annual tin quota, which had been determined by the Association of Tin Producing Countries (ATPC). This strategy had been implemented without thoroughly examining financial implications. Production and operation planning had been carried out on a short-term (1-year) basis. BPL-1993-10, rev 2/799 relay stations and schools. As a result, their production costs declined from U.S.$7,000;ton in 1990, to U.S.$4,900/ton in 1992. Employee productivity had also increased. In 1990, employees had produced an average of 0.9 tons of tin/year, while in 1992 they produced 2.4 tons/year, Reduction of employees from 24,000 in 1989 to 9,500 in 1992 substantially contributed to this increase. Besides the increased productivity of employees, machinery and equipment had also bean upgraded. In 1992, the company had successfully established a management information system (MIS). As of September of 1992, PTTT's management was able to get consolidated corporate financial reports on a biweekly basis. This facilitated a quick decision-making process. Dr. Mangkusubroto commented: ‘Since November of 1992, from Pangkalpinang, | have been able to monitor things such as sales volumes of PTTT tin in the New York, London and Jakarta markeis, through an on-line computer network? Indeed, observers could attest to the fact that in its inital steps, PTTT was successful in implementing its restructuring program. However, any corporate restructuring program is ‘a complex process involving readjustments of physical, organizational and financial affairs.* Facing the Future Demand The IMF (International Monetary Fund) predicts that the growth of the world economy will slow in 1893. A deop economic siump in Europe and Japan will result in a far more sluggish 1993 world market than had previously been predicted. The IMF released its world economic forecasts in December of 1992, which stated that growth in the industrial countries would be two pereent this year, wall below the three percent predicted only three months ago. The economic slump in 1993 is predicted to harm American exports, and make an uptum in the American economy more difficult. The United States economy is ‘expected to grow by three percent (1993), compared with one percent in Germany and 2.5 percent in Japan. Itis further predicted that growth in Western Europe will be a feeble one percent, largely because of the recession in Germany.” >From an interview with Or Mangkusubroto on 25/2/83 ‘See BT, Tarbang Timah (B) ‘or dosilod informaten, wall Steet Jounal, Decerber 22, 1982. 6.1 993-10, rev 2/°99 caplured most of the added value from aluminum can stock, tin producers benefitted to only a modest degree from additional sales of tin plate. In response to the situations mentioned above, PTTT's management identified three marketing strategies: 4. Target higher growth segments of the market 2. Target segments of tho market which they are not currently serving. 3, Target the market share currently held by other producers. Tha strategy which PTT will need to follow will depend upon the capability of the company to respond to market neads. To target higher growth segments of the market, PTT could focus either on locations, or on end-users. Geographically, it had been projected that most of the increased consumption of tin would occur in Asia. PTTT's current marketing strategies took advantage of this trend, since about 50% of PTTT's revenue came from Asia. Howover, observers noticed that this region of the world presented some unique distribution ‘challenges. In Japan, Korea and the Philippines, distribution was typically handied through trading companies. PTTT preferred to sell its tin products directly to end users, but the difficulties associated with doing 80 were well known. Trading houses in those countries had been playing a big role in dealing with foreign companies for a long time. These institutions ware the trade-gate through which exporters, including PTT. had to pass. Attempting to bypass these trading companies could be met with trade retaliation. Observation of tin markets revealed two areas of potential growth. The first was low-lead® tin plate used in food packaging. Observers found that this was a new market ‘which was not yet saturated by overhanging stocks of tin. In addition, relativaly few producing countries were currently competing in this area. It is a market which was most highly developed in North America, but was expected to expand to Europe and eventually to Japan. Another marke! with growth potential was low-lead solder. While this market ‘was noi as advanced as that for the low-lead tin piate, current indications were that it would develop over the next few years. ‘The second strategy PTT was considering was to target segments of the market which they are net currently Serving. PTTT found that most in consumers purchased tin in three different ways: forward purchases beyond e ono year period, contracts for delivery in the current year, and soot market purchases. Currently, PTTT only made contracts for

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