David Krause8.1 The self-test
Answer each question honestly — the checkmarks stay in your browser and are transmitted nowhere.
8.2 How the corrections are calculated
For each of the ten errors the book contains a complete before/after calculation on the reference company. Two examples show the method:
Before: 5-axis machining center, replacement value €669,000, tax useful life 14 years → imputed depreciation €47,786/year → €14.08/h at 3,393 h.
After: technical useful life in two-shift operation 13 years → €51,462/year → €15.17/h. Difference: +€1.08/h.
In three-shift operation the error worsens: the machine wears faster, the technical useful life drops to 10 years → €66,900/year → €13.15/h at 5,088 h. Calculating with 14 years there gives €9.39/h. Difference: +€3.76/h or around €19,100 a year — per machine.
Before: flat overhead surcharge of 150 % on direct labor. At €32/h that gives every center the same full hour rate: 32.00 + 48.00 = €80.00/h — for the 5-axis machining center just as for the assembly station.
After: cost-center-specific rates per BAB. 5-axis machining center: 46.37 MHR + 32.00 labor + 11.23 residual OH = €89.60/h. Assembly (no MHR, overhead 60.8 %): 32.00 + 19.46 = €51.46/h.
The machining center was €9.60/h too cheap, assembly €28.54/h too expensive. At 2,000 machining-center hours that is €19,200 under-absorption — while assembly at 1,500 hours over-absorbs €42,810. Assembly subsidizes the machining.
8.3 The cumulative correction need
The effects are not additive — some errors partly offset each other, others reinforce. The order of magnitude is clear, however:
| # | Error | Difference | Annual effect |
|---|---|---|---|
| 01 | Income taxes as costs | −€4.93/h | −€29,580 |
| 02 | Depreciation on acquisition cost | up to +€7.65/h | up to −€68,850 |
| 03 | Tax useful life | up to +€3.76/h | up to −€19,100 |
| 04 | Capacity overestimated | +€10.20/h | −€44,376 |
| 05 | Spindle vs. machine time | ±€5.45/h | ~€7,000 misallocation |
| 06 | Tooling watering can | up to +€18/h | −€18,000 |
| 07 | Flat overhead surcharge | +€9.60/h | −€19,200 |
| 08 | Imputed costs missing | +€15.33/h | −€91,980 |
| 09 | No period allocation | ±€24/h fluctuation | not quantifiable |
| 10 | Assembly without resource rate | −€29.24/h | +€219,300 lost orders |
| Σ | Total potential (cumulative, not additive) | 15–35 % | €125,000–375,000 |
A negative value here does not mean "harmless". Assembly is costed €29.24/h too expensive — orders go to the competition because of it, even though they could have been produced profitably. The €219,300 is lost revenue, not lost margin. But it shows: rates that are too high cost just as much as ones too low, only more invisibly.
If you follow the "quick start" reading path, it continues with Chapter 11.4 — the price floors. In about two hours you then have a solid picture of where your costing stands. For the full build-up, start at Chapter 4 and recalculate the reference company with your own figures in parallel.
