ABSTRACT
I might not be the “sharpest tool in the shed” but I completely understand that the more volume you move through a manufacturing plant, the more likely you are to be profitable. I can’t argue with those of you who are thinking, “Yeah, but it has to be work at a decent margin.” But, in the case where you have already covered fixed costs with baseline volume, it is basically hard to lose money on additional jobs as long as they absorb more than just the variable costs. The problem most companies encounter is their quoting and accounting systems are stuck in the mind-set of full absorption costing (includes all manufacturing costs: i.e., direct materials, direct labor, and both variable and fixed manufacturing overhead), instead of having the aptitude in certain cases to apply only variable costing (includes only variable manufacturing costs: i.e., direct materials, direct labor, and only variable manufacturing overhead) plus a bit of profit. In those special circumstances where you look at only variable costs, it would lead to arriving at a lower quoted price and might put some work in your shop that you might not otherwise have been awarded.
