Accountancy Forum

I have accounted for itemized manufacturing costs per item. Recently the suppliers have decreased their rates and I want to know the expected decrease in costs for the coming months. Supplier costs are fixed per unit and not variable to volume.

Here is where it gets tricky. The input to have one item is not always constant. Some require more, some less. So we average the cost per unit. One way to estimate the savings for the coming months is to run all the individual units from CY2009 and replace it with the new prices and voila I can get the savings. But this is too time consuming.

The questions is, for the purposes of projection, can I simply interpolate the difference and apply that percentage decrease to the averaged actual costs to get the expected savings?

That maybe one way. Or you can use actual material used for certain volume of units and multiply them with the new price per unit of measurement(e.g kg). The difference between actual material used with old price and actual material used with new price could be an estimate of possible savings

is that sound judgment to just interpolate the difference?

I can see where youre going with what you said. however its not something I could easily do. let me show you an example

PROD1 - uses A, B, C
PROD2 - uses A, D, E
PROD3 - uses A, C, D

"A" used in PROD1 will not cost the same as PROD2 or PROD3. You would think it would be coded differently but they arent. "A" used for either products will be costed differently according to their product group. So the only way to apply the new cost is to see each individual product lines. I could use a qualifier in excel to group the product with the material but the data is not in spreadsheet form.

So to just make things right I decided to run the past years numbers with the new prices to see what the expected average would be. Low and behold the difference between running the whole CY2009 and applying the percentage differences was $0.50???

Running 2009 - $384.08
Percentage - $383.56

and I spend a good part of my day doing all this...

Really? That is almost same