Insteel Wire Products

Activity Based Management at Andrews

Group 11: Bale, Krishna, Lugun, Nag,

Sen

Background IWP
- Product Range - Industrial wires, Bulk nails, Collated
fasteners, Agricultural fencing

- Primary markets -

Construction, Home Furnishing,

Appliance & Agricultural Industries

- Annual sales revenues - $300 million

Background Andrews
- Andrews - 4 product lines, 477 products
- Pareto Principle applies

Why ABC?
- Numerous Products Commodity & Made to Order
- Intense Profit Pressures
- Helps measure customer profitability

Major Findings
- Galvanized wire, mesh products - losing money
- Small wire customers - more profitable
- Nail business most profitable

Total Cost Information

Galvanized Pallet Nails
- Third Cell for Galvanized Pallet Nails
- Additional Costs
Labour : $200,000
Dep of Threading/Heading Machine : $90,000
EVA of Threading/Heading Machine : $145,800
1995-96

1996-97

Sales($M)

1.95

2.10

Sales in Tons

2600

2817

Material Costs ($M)

0.90

1.10

Conversion Costs
($M)

0.859

1.271

Net Profits ($M)

0.191

(0.271)

Corrected Calculations
Delayed Operation

1995-96

1996-97

Sales($M)

1.95

2.10

Sales in Tons

2600

2817

Material Costs ($M)

0.90

1.10

Conversion Costs ($M)

0.859

0.835

Net Profits ($M)

0.191

0.165

Reconciliation

1996-97

Labour ($)

2,00,000

Dep H/T ($)

90,000

EVA H/T ($)

1,45,800

Cost of Excess
Capacity ($)

4,35,800

Corrected Calculations
Timely Operation

1995-96

1996-97

Sales($M)

1.95

3.15

Sales in Tons

2600

4226

Material Costs ($M)

0.90

1.65

Conversion Costs
($M)

0.859

1.41

Net Profits ($M)

0.191

0.091

Timely Operation 2

1995-96

1996-97

Sales($M)

1.95

2.39

Sales in Tons

2600

3200

Material Costs ($M)

0.90

1.25

Conversion Costs
($M)

0.859

1.31

Net Profits ($M)

0.191

(0.173)

Conclusion

Although the addition of third cell seems

to lower profitability, the major costs
Depreciation & EVA will reduce in the long
term, & with sufficient demand the
profitability will pick up. Hence in hindsight
the decision to add the third cell was
justified

Thanks

Microsoft Office
Excel Worksheet