mountain man primitive weighs the wayward world of widgets

[franksolich]

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x9188421

Oh my.

The mountain man primitive who, like all men, nightly pitches his tent one day's march nearer the mausoleum:

ThomWV  (1000+ posts)        Thu Sep-23-10 03:08 PM
THE MOUNTAIN MAN PRIMITIVE
Original message

The wayward world of widgets

Its today and you are the owner of a small widget manufacturing company. Widget sales are down to 500 widgets a day and you aren't sure you can continue to employ your five widget-makers, each of whom is capable of producing about 125 widgets a day. Widget makers cost you about $100K per year in salary and overhead (a substantial portion of which is management cost, which happens to be your cut). As it turns out the Government will allow you to write off 100% of the cost of a new widget maker if you wish to buy one and this machine, which costs about $100k, can produce over 10,000 widgets a day when running at full power, but can supply all of your widget needs, now and into the future, while loafing along at its lowest setting. The automated widget-maker does not require a skilled widget maker to operate, just someone to check its oil periodically.

What do you do as owner of the Widget factory?

Now lets add to the situation, let's say you are given substantial additional tax cuts with which you might either buy this mighty machine or hire an additional skilled employee. What do you do?

RUMMYisFROSTED  (1000+ posts)      Thu Sep-23-10 03:16 PM
Response to Original message
 
1. What does a widget sell for?

MilesColtrane  (1000+ posts)        Thu Sep-23-10 04:13 PM
Response to Original message
 
2. Am I paying my employees' health care costs?

RaleighNCDUer (1000+ posts)      Thu Sep-23-10 05:02 PM
Response to Original message
 
3. If widget sales are down to 500/day, why would you take a huge loan, even with such an offer (remember, the write-off would not do anything until tax time the following year) to buy a machine that would up your production far beyond the demands of the market?

How about, instead, plowing a good portion of that 'management cost' into sales operations to increase the demand for your widgets, and you taking home 150k instead of 300k as your salary? I mean, are YOU down on the floor producing widgets yourself? What are you doing for your pay, other than 'owning'?

Spike89 (719 posts)        Thu Sep-23-10 05:58 PM
Response to Original message
 
4. Good question, and a sad simple answer

You really only have a choice between buying the widget making machine or going into the custom widget business. Assuming there is no custom widget market to speak of, you really have no choice. If you don't buy a widget machine, you won't be able to compete when your competitors drop wholesale prices to reflect their lower costs due to their widget machines.

If widgets are simple--perhaps identical to a common 16-penny nail--this exercise was completed almost 200 years ago. If widgets are more complex--perhaps identical to the vehicles many people drive--the decisions were mostly made a generation ago. If widgets are artistic or custom--perhaps identical to dress shoes--the decision is whether to go the high-end craft route or to buy the machine.

It is inevitable, we're moving toward black-box manufacturing of everything that can be mass-produced. Other than maintenance of the black-boxes, factories will be fully automated. Manufacturing will not be the occupation of the middle class of the future. If there is going to be a middle class, there will need to be something else. It is possible that craftmanship, artistry, and "white collar" jobs will expand, but I'm guessing we'll be flailing for generations to come to grips with a labor change that in many ways is more profound than the industrial revolution. As always, it will be the middle class that takes the big hit. Eventually, we'll be a bit like Star Trek, in that value will not come primarily from things but from ideas and skills. Although, I don't think it will be a money-free society. We'll still pay for skills (doctors, entertainers, teachers) and those with the most marketable skills will be able to use those advantages to get commodities and things (land, art, etc.) that are finite and non-manufacturable.

[JohnnyReb]

Two possibilities.....

1- You buy the sooper-dooper widget machine and make all the widgets sold in the US. You just stamp the name of your competitor in the ones you make for them.

2- You fire the DUmmies and outsource the business to China.

[jukin]

Having actually had a 'Widget Business" I will explain the realities.

You have 10 employees that make $40k each in salaries. You pay 7.5% of that in FICA and medicare. Unemployment insurance runs about 5%. Manufacturing workers comp runs around 30%. Health care runs around 15%. Before any overhead you have a direct cost of $63K. But wait that's not all.  The big SIX Holidays (Xmas, New years, Fourth of July, Memorial, Labor, Thanksgiving) are the very minimum you can get away with, that's 48 hours. Add in two weeks vacation of 80 hours and five sick/personal days of 40 hours (maybe more now under Obama). Total paid but not working time is 168 hours. That means that for the supposed 2080 hours an employee is working they only work 1912 hours. Now we are up to a real cost of $68.5K. or 171% of base salary. This takes into account ZERO management hours/employee nor does it include any time for accounting and HR. A good rule is one supervisor can effectively control seven employees. Supervisor make $60K. Using the above baselines that is $102.6K. divide that by the seven employees and you have $14.65K per employee that actually makes said widget. know the burdened cost is $83.16K. It gets murky on accounting but if you use a service like Paychex it used to run at 6% of base salary or $2.4K, depends on the amount of employees.  more employees will bring the percentage down.

Let's review the $40K employee actually cost the mean evil small business owner that works 12 hours (or more/day) and at least 6 days/week $85.56K or 114% more than base salary. And most likely said employee will get drunk on the Thursday night before a widget need to ship to get the money to pay said employee and not come in to get the widget out the backdoor, so you have to add in cost of funds to make payroll.  Because said employee will always  show up on payday.

I'm out now, thank goodness. I do not have to think for having to file 1099s for any purchase or deal with the new HellCare mandate. So take the above numbers as the low side of a small manufacturing business employee costs.

I swear every DUmbass thinks that the hard working putting food on the table small business owner is Scrooge McDuck when that is really the government.

I forgot that you just may have to hire an employee that does nothing but track your operation for the government filing regulations.  Trust me if your state is having a budget shortfall you will get audited by the sales tax board (franchise tax in Kalifornia) and that will eat up to 200 hours of the owners and accountants time.

So from personal experience it is government regulations and mandates that are driving business to more friendly states and now more friendly countries.  The labor cost eventually becomes a very minor subject.

Of course, I do not have the experience of a pot smoking, lazy, cheeto eating Dumbass to back this up...just real world experience.

[IassaFTots]

Having actually had a 'Widget Business" I will explain the realities.

You have 10 employees that make $40k each in salaries. You pay 7.5% of that in FICA and medicare. Unemployment insurance runs about 5%. Manufacturing workers comp runs around 30%. Health care runs around 15%. Before any overhead you have a direct cost of $63K. But wait that's not all.  The big SIX Holidays (Xmas, New years, Fourth of July, Memorial, Labor, Thanksgiving) are the very minimum you can get away with, that's 48 hours. Add in two weeks vacation of 80 hours and five sick/personal days of 40 hours (maybe more know under Obama). tioatl paid but not working time is 168 hours. That means that for the supposed 2080 hours an employee is working they only work 1912 hours. Now we are up to a real cost of $68.5K. or 171% of base salary. This takes into account ZERO management hours/employee nor does it include any time for accounting and HR. A good rule is one supervisor can effectively control seven employees. Supervisor make $60K. Using the above baselines that is $102.6K. divide that by the seven employees and you have $14.65K per employee that actually makes said widget. know the burdened cost is $83.16K. It gets murky on accounting but if you use a service like Paychex it used to run at 6% of base salary or $2.4K, depends on the amount of employees.  more employees will bring the percentage down.

Let's review the $40K employee actually cost the mean evil small business owner that works 12 hours (or more/day) and at least 6 days/week $85.56K or 114% more than base salary. And most likely said employee will get drunk on the Thursday night before a widget need to ship to get the money to pay said employee and not come in to get the widget out the backdoor, so you have to add in cost of funds to make payroll.  Because said employee will always  show up on payday.

I'm out now, thank goodness. I do not have to think for having to file 1099s for any purchase or deal with the new HellCare mandate. So take the above numbers as the low side of a small manufacturing business employee costs.

I swear every DUmbass thinks that the hard working putting food on the table small business owner is Scrooge McDuck when that is really the government.

With your permission, I would love to bookmark this for future reference.  It would come in handy on occasion in my work. 

[AllosaursRus]

With your permission, I would love to bookmark this for future reference.  It would come in handy on occasion in my work.  

I second that, Issa! Best damn explanation I've read so far! Thank God all I ever have to do is just labor as it falls under the Farm Act! I can pay each employee up to $500 and not even keep records! Anything over that, and I have to send out 1099's, but I don't have to pay or collect taxes.

It does have it's drawbacks though. I don't have enough work to keep a full time employee who learns the ropes.

[IassaFTots]

I second that, Issa! Best damn explanation I've read so far! Thank God all I ever have to do is just labor as it falls under the Farm Act! I can pay each employee up to $500 and not even keep records! Anything over that, and I have to send out 1099's, but I don't have to pay or collect taxes.

It does have it's drawbacks though. I don't have enough work to keep a full time employee who learns the ropes.

I have always worked for relatively large companies, 500-1000 people.  But, on the grand scheme of things they are pretty small.  The smaller the group of people, the smaller the ratio of cost sharing.   Granted, every company's main goal was to make money, but not at the expense of it's employees.  Some people just really don't get what it takes to keep a company running. 

[jukin]

Sorry for late reply. Evey one and anyone is welcome to use this.  The information is about 12-16 months out of current but I imagine very close.

It is not cheap labor that is pushing manufacturing jobs out of the country or to automation but government regs.

[USA4ME]

ThomWV

As it turns out the Government will allow you to write off 100% of the cost of a new widget maker if you wish to buy one....

Now lets add to the situation, let's say you are given substantial additional tax cuts with which you might either buy this mighty machine or hire an additional skilled employee.

So you get to write off 100% of the cost and you are given substantial additional tax cuts?  What magical world does he live in?  Wherever it is, there's no liberals there because they would have increased the taxes, provided no write offs, and forced you to hire employees you don't need based upon criteria they have approved.

.

[jukin]

ThomWV

As it turns out the Government will allow you to write off 100% of the cost of a new widget maker if you wish to buy one....

Now lets add to the situation, let's say you are given substantial additional tax cuts with which you might either buy this mighty machine or hire an additional skilled employee.

ThomWV you ignorant slut. What you get to do is depreciate the cost of the widget over time unless your total depreciation of all the widgets is under $10K. However, in Kalifornia, city and county thinks that your widget appreciates[/i] and your business tax goes up.

In addition, you DUmbass, what you get back is a percentage of the actual cost of the widget. Say that you have a business that the corrupt democrat party has not destroyed and against all the let's hard work you turn a profit of $100K. The small business owner gets to pay $4000 dollars less in tax ($100k/7 year depreciation X .28 tax rate).

Another DUchebag that knows nothing of business and probably has a tough time figuring our how to use toilet paper but thinks they know how to run a business and deal with the government tax and regulatory structures.