A Cleveland manufacturer with $6.8M revenue had never implemented standard costing. We built proper manufacturing bookkeeping and found $184K in annual waste nobody knew existed.
01The Situation
The plant manager had been running production for 11 years. The monthly P&L showed a gross margin of 38%. But cash was always tighter than the numbers suggested. The bookkeeping system had no standard costing. Everything went into a single raw materials account. Variances had been accumulating undetected for years.
When we looked at the books, the true gross margin was 34.2%, nearly 4 points below reported. That gap had been funding waste silently while the owner made investment decisions on wrong numbers.
02What We Did
We established standard costs for all 340 active components and rebuilt the bookkeeping system to capture actual costs at the same granularity. The first month variance report found a steel supplier delivering at prices 8% above contracted PO rates for 14 months, nobody had matched invoices to POs systematically.
Machine calibration drift was generating scrap 40% above standard. Three of the four root causes were fixable within 60 days. The owner now receives a one-page variance report every Monday.
03Client Impact
The owner assumed 38% gross margin was real. It was 34.2%. That gap funded waste for years. Fixing the four root causes improved true gross margin to 36.8% within two quarters.
Breakdown
| Variance Category | Annual Amount | Root Cause | Action Taken | Status |
|---|---|---|---|---|
| Material price variance | $68,400 | Supplier overcharging vs PO | 3 contracts renegotiated | |
| Scrap & waste variance | $52,800 | Machine calibration drift | Maintenance tightened | |
| Labor efficiency variance | $38,200 | Avoidable rework overtime | Quality checkpoint added | |
| Overhead absorption gap | $24,600 | Incorrect burden rate | Recalculated quarterly | |
| TOTAL | $184,000 | Multiple root causes | All addressed |
What changed
Standard Costing for 340 SKUs
Material, labor, and overhead standards set. Variance tracking live from month one.
$184K Annual Waste Found and Fixed
Four root causes addressed within 90 days. True margin restated 38.1% to 34.2%, then rebuilt to 36.8%.
Supplier Overcharging Identified
Steel supplier charging 8% above PO rates for 14 months. Three contracts renegotiated. Saving: $68,400/yr.
Weekly Variance Report Introduced
One-page report every Monday. Problems now surface in days, not months.
The owner assumed 38% gross margin was real. It was 34.2%. That gap funded waste for years. Fixing the four root causes improved true gross margin to 36.8% within two quarters.
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