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Why a simple sketch can make the biggest contribution.

Document Cited in Related
Vincent
AuthorJonnes, George
PositionLetter to the Editor

I was impressed with your feature on contribution per hour ("As easy as CBA?", FM, September 2004), because in all my 40 years of consulting and part-time lecturing I never met anyone who'd heard of such a thing. The most potent weapon in a productivity and profit control system is the coupling of the contribution per factory process hour with its companion, cost per hour of fixed factory expenses and wages plus fixed administrative, selling and distribution expenses.

All fixed expenses accrue hourly, ticking away as relentlessly as the factory clock. They must be included in the production hourly rate to avoid the error made by traditional systems, which try to recover them in the "gross" profit blanket percentage mark-up on materials cost plus wages and factory overheads. Such methods often result in adverse product mix changes, with dire financial consequences.

The contribution is the difference between the selling price (minus variable selling and distribution expenses) and the materials cost (plus variable production expenses). It...

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