PLANT SPECIFIC OVERHEADS - an example of a “What- if” situation needs to be explored to help towards an important decision to invest or not to invest in an item of new plant.

To meet increased demand, it is proposed to buy a CNC Machine costing £150,000.
IThe cost is to be paid over 10 years @ 6% per annum simple interest.

Two operators, one skilled and one semi-skilled will be employed to man it.

In addition a programmer will be needed @ £30,000/annum salary to help towards the efficient running of this new machine.

Assuming that the order book will keep the machine busy for a single shift over a standard week, the decision will hinge on what hourly rate is required to operate this machine at to maintain or increase our net profit.

On the Budget page, the following figures will be affected.

General Overheads:

Let us assume that this new item of Plant is going to bear 5% of all General Overheads, except for the following:

Loan Interest: £900

Insurances:    £500

Programmer’s Salary: £30,000

(Method:  From the “General Overheads” budget, subtract the sum of the current values of the Loan Interest & Insurance. Calculate 5% of the resulting figure and enter it into in the box labelled “Other”. Enter the Loan Interest, Insurances values of £900 & £500 respectively and £30,000 salary into the budget fields. Enter a “0” value in all the other fields).

Enter these figures into the appropriate boxes and reduce all remaining figures by 95%.

Plant Specific Overheads:

Depreciation - Plant & Equipment: Enter £15,000 (= £150,000/10)

Light & Heat: Enter £1,800                 (calculated or estimated)

Repairs & Renewals: Enter £1,200                     “

Consumable Tooling: Enter £2,300                     “
Enter “0” in the “Other” field

Click on the “Calc” buttons”

Click here to see screen shot of resulting window