Low Margins or No Revenue?
At the time of the Franklin order we had no other work in Quadrax. The usual trickle of orders were coming in for tape but there was nothing else.
As any cost accountant will tell you, there is a lot of difference between full absorption costing and direct costing of a product. Full absorption costing would have lost us the Franklin order. Mike Dorf and I decided that pricing based on direct costing would get us a revenue stream we did not then have and cover most direct labor costs. I haggled with Franklin over the price. They paid more than they wanted and we got paid less than we wanted - normal commercial compromise.
At the time of taking the order, we had no experience in running the machine or screenprinting so our costs were pure guesswork. It is easy for Doug/Deep Throat to look back now, apply full absorption to the costing and say we weren't making a profit! I am sure you stockholders appreciate that for a few months there we were getting in $35,000/week that was helping the Reg D/S money go a lot further.
Actually we were making a big profit but I didn't know it. I had persuaded vendors to supply us with the large amounts of resin,fiber and paint needed for these sticks. In late October those vendors still had not been paid for May/June/July deliveries. The only costs, so far, on those sticks were direct labor and, since we did not have the Palermo brothers as first and second shift supervisors, I am sure the direct labor costs were a lot less than $35,000/week.
"Low margins" was a cheap shot for someone in a greenhouse Doug. Why don't you tell the readers about the price decreases to keep the Spinergy order! I had negotiated two price increases with Franklin, not much on each, but it was going up and not down!
David |
