EPA 5307 SW-154
MAY 1975
o«s°
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An environmental protection publication in the solid waste management
series (SW-154). Mention of commercial products does not constitute
endorsement by the U.S. Government. Editing and technical content of
this report were accomplished by the Systems Management Division of the
Office of Solid Waste Management Programs.
Single copies of this publication are available from Solid Waste
Management Information Materials Distribution, U.S. Environmental
Protection Agency, Cincinnati, Ohio 45268.
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AN ACCOUNTING SYSTEM
FOR SOLID WASTE SHREDDERS
by Steven J. Hitte*
The increasing costs and complexities of solid waste handling
require new, more sophisticated management techniques. Data
on performance and the costs of operation and ownership are essential
for the use of these management tools. A good information system
is, therefore, a prerequisite to effective management. Although
cost accounting represents only one part of the total information
system, its design, installation, and utilization can represent
a most significant step in the development of an effective solid
waste management program.
Present information on solid waste shredder activities
and associated costs is both inadequate and nonstandardized.
Furthermore, the use of shredders will continue to expand as
urbanization causes increased concentrations of solid wastes and
a scarcity of proximate disposal sites. The proposed accounting
system provides a guide to the type and quantity of cost information
to be gathered, its classification, and the method of collection.
It is intended to be of use to municipal or private personnel
involved in solid waste shredder operation and ownership.
Installation of a cost accounting system can help the shredder
plant manager control the costs and performance of operation and
also plan for the future. The system can be implemented as presented
or modified to meet the specific needs and problems of the potential
user.
Systems Benefits
Some of the more important advantages of a cost accounting
system are:
(1) The system facilitates the orderly and efficient collection
and transmission of all relevant data. In fact, most of the
data to be recorded are probably being collected already, although
* Mr. Hitte is a mechanical engineer with the Systems Management
Division of the Environmental Protection Agency's Office of Solid
Waste Management Programs, Washington, D. C.
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perhaps only sporadically and ineffectively. Hence, the added
cost of installing the proposed system is minimal.
(2) Reports are clear and concise and present only the amount
of data required for effective cost control and analysis. They can
be understood and completed easily by station personnel.
(3) The data are grouped in standard accounting classifications,
This simplifies interpretation of results and comparison with
data from previous years or other operations. This, in turn,
allows analysis of relative performance and operational changes.
(4) The system accounts for all relevant costs of operations.
(5) Because the system detects high costs and identifies
their underlying causes, the supervisor can control expenses
more effectively. Similarly, performance and efficiency may
be monitored and controlled. Accountability therefore is super-
imposed on the system to indicate who or what is responsible
for the increased costs.
(6) The data provided are in a form that aids in the short-
and long-range forecasting of operating and capital budgets.
Requirements for equipment, manpower, cash, etc., can be estimated
to aid budgeting and planning at all levels of management. The
data are also available for later evaluation and analysis using
operations research techniques.
(7) The system, with only minor modifications, is flexible
enough to meet the varying requirements of different sizes of
solid waste shredders.
Cost Centers and Cost Allocation
Two general types of costs are incurred by solid waste shredder
operations (Table I): operating costs and the cost of financing and
ownership. Operating costs include labor, utilities, parts and
supplies, and overhead. Financing and ownership costs are those
associated with the loss in value of fixed assets (both equipment and
facilities) and the costs of funds required to purchase and retain
the fixed assets. More commonly, the terms depreciation and interest
are used.
The complexity of solid waste shredder operations requires a
breakdown and description of operations to facilitate cost analysis.
In the proposed system, the shredder is assumed to consist of several
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TABLE I
SUMMARY OF COST TYPES
Labor (1)
Paris and supplies (2)
Utilities (3)
Overhead (4)
TOTAL OPERATING COSTS
Depreciation (5)
Interest (6)
TOTAL FINANCING AND OWNERSHIP COSTS
TOTAL COSTS
(1) Labor includes all direct wages, overtime pay and fringe benefits.
Fringe benefits include the costs of group insurance, social security,
pensions, vacation benefits, etc.
(2) Parts and supplies include welding rods, oil, gas, grease,
repair parts, miscellaneous supplies, etc.
(3) Utilities include electric, natural gas, water, etc.
(4) Overhead includes supervision, payroll and accounting services by
other departments, liability and property insurance, taxes, and external
charges. External charges include audits, contractual services, etc.,
when they are performed by other municipal departments, private
contractors or consultants.
(5) Depreciation may be calculated using either straight line or accelerated
methods.
(6) Interest should represent actual costs of funds.
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interrelated suboperations, each of which is analyzed separately.
These suboperations are called cost centers because expenses are
accumulated separately for each of these functional activities
(Figure 1). Analysis and control are simplified if excessive costs
or inefficiencies can be traced to specific functional activities
or areas of the facility.
The number of cost centers required increases as the size and
complexity of operations increase. In most cases, shredder operations
would include activities at the shredder as well as the final haul
to the disposal site. In this event, three cost centers would probably
suffice to gather adequate information without incurring excessive
data collection costs.
The three cost centers are: Solid Waste Shredder, Shredded Waste
Hauling, and Repair and Maintenance. The first two cost centers are
termed direct cost centers because they include activities directly
related to shredding and hauling operations. The Repairs and Main-
tenance cost center, which accumulates all costs associated with the
repairs and maintenance of the shredder facility and equipment, is
an indirect cost center. Because repairs and maintenance activities
can represent a substantial proportion of costs, these activities and
their associated costs are analyzed as a separate cost center; however,
these costs are then allocated to the two direct cost centers because
they receive the repair and maintenance services.
The operating costs must be allocated to the three cost centers
in an accurate and representative manner. Although financing and
ownership costs can be allocated to individual cost centers, the
benefits do not justify the additional calculations. For general
analysis and control, operating costs are sufficient for cost center
analyses. At infrequent intervals, when the additional data are
required (for lease-buying decisions, etc.), reconstruction is easily
accomplished. Figure 1 illustrates the procedure for allocating
the operating costs to the three cost centers and the relationship
of these operating costs and the financing and ownership costs to
the total annual cost.
The method of allocation for each type of operating cost is as
follows:
0 The labor charges should be allocated to the cost centers
based on the number of hours employees worked in each
and on their respective wage rates.
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0 Parts and supplies include oil and gasoline as well as
any materials used for repairs and maintenance. For example,
gasoline costs are assigned directly to the Shredded Waste
Hauling cost center because they are incurred by its vehicles.
0 All other parts and supplies are allocated to each direct
cost center after being recorded in the Repairs and Maintenance
cost center.
0 Repair charges levied by other municipal departments or
private firms are also allocated to the direct cost centers
after being recorded in the indirect cost center.
0 Utility costs are incurred by the Repairs and Maintenance
and the Solid Waste Shredder cost centers.
0 General overhead, which includes supervision, administration
and charges from other departments (payroll, accounting)
can be allocated equally to each cost center or on the
basis of the number of employees each has.
The costs of the Repairs and Maintenance cost center would finally
be allocated to the two direct cost centers; the allocation would be
based on the expenses each has incurred.
The sum of the costs of the Solid Waste Shredder and the Solid
Waste Hauling cost centers is the total operating cost. The actual
system is designed to facilitate the accumulation and later allocation
of costs to these cost centers.
Forms and Reports
Information flows through the cost system by way of eight
reports (Figure 2). They transmit data collected in the field
for use at various levels of supervision and management. The
reports are most easily grouped into those that are primarily
used to collect data on operations and those that are used to
reduce and analyze data for decision-making and control.
Reduction and presentation cannot be accomplished unless
all pertinent activities and cost information are recorded daily.
If this is not done, the data cannot be retrieved later. Shredder
personnel, supervisors, and others involved in operations primarily
use Forms 1 through 8 to record the data required. These forms are
designed so that the shredder supervisor or personnel can readily
record the necessary data. If more than one shredder unit is
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Wage rates, utility bills,
charges from other departments
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Key:
Figure 2. This diagram shows the relationship
between reports and information flow.
Report
Information
flow
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installed at a particular location, v;hether it be of the same type
or not, some of these forms should be filled out for each unit.
The shredder identification line at the top of each form is to
identify each shredder either by manufacturer brand, serial number,
or local identification system.
Weekly labor report (Form 1). Daily entries of labor activity
are recorded in duplicate at the site by the foreman or supervisor.
One copy is forwarded to the payroll department for determining
weekly wages. The supervisor or the accounting department uses
the other copy to compute the total hours worked and to assign the
time and associated costs to the cost centers.
Truck record (Form 2). This form shows the quantities,
sources, and types of solid waste delivered to the shredder.
The number, identification, and net weight of outgoing vehicles
are also recorded. Each delivery or departure is entered by the
weighmaster. The form is forwarded to the accounting department
at the end of each month. In addition to using recorded weight
data to bill public and private users later, the sources and types
of waste data are useful in special analyses of trends, compositions,
and distributions of solid wastes in the community. This data should
also be useful in correlating possible ties between the types of
wastes being shredded and the equipment wear rates or utility increases,
Equipment maintenance record (Form 3). This form accumulates
the activities and associated costs of repairing and maintaining the
shredder equipment. Entries are made only when repairs including
routine maintenance are undertaken. These data are particularly
useful in analyzing maintenance department performance, equipment
availability, and equipment repair costs in the Solid Waste Shredder
cost center.
Vehicle maintenance record (Form 4). This form accumulates
the activities and associated costs incurred in maintaining the
vehicles. A separate sheet is kept for each vehicle, and entries
are made only when maintenance or repairs are undertaken. These
data are useful in analyzing individual truck efficiencies and repair
costs in the Repairs and Maintenance cost center.
Equipment and facility inventory (Form 5). This form is
completed when construction is finished or when the cost system
is first implemented. It is updated only when improvements or new
equipment are constructed, purchased, or sold. In addition to
collecting the data required to calculate depreciation for the
period and allocating it to cost centers, the form also summarizes
the bond and interest information needed to arrive at total costs
of financing and ownership.
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FORM 2
DAILY TRUCK RECORD
Shredder
Identification
SIGNATURE .
DATE: .
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
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19
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Truck ident*
TOTALS
Time
X
Incoming wastes
Source
X
Type
X
Weighted load
X
Weight empty
or tare wt.
X
Net amount of wastes
Incoming
Outgoing
Instructions: To be completed by weighmaster for each delivery of wastes or
departure of transfer vehicle.
Symbols:
Source: R (residential), C (commercial), I (industrial)
Type- T (tires), G (garbage), etc.
*Truck ident. is # of oublic truck; if private vehicle list nane
of company for billing nurnoses. Also identify transfer vehicles by
number and driver's nane.
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FORM 3
Shredder
Identification
For Period
F'iredder
f 'li,ipnv>nt or part
^f tacility repaired
repjir
Mrs
station
was down
Labor
hrs
Parts
description
Labor
cost
Parts
cost
External
charges
Overhead
cost
Total
* External charges may include special equipment rental, additional
temporary oerso.inel, or any singular occurrence that might require a one-time
additional charge.
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VEHICLE MAINTENANCE RECORD
FORM 4
TRUCK IDENTIFICATION
For Period .
DATE
TOTALS
Odometer
reading
X
Type of service
or repair
X
Mrs
down
Labor
hrs
Description
parts and supplies,
X
Labor
cost
Parts
cost
^c
External
charges
Overhead
(rate hrs )
Total
cost
* External charges nay include special equipment rental, additional
temporary personnel, or any singular occurrence that might require a one-time
additional charge. 10
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Forms 6 through 8 are completed less frequently; the
intervals depend on the type of information transmitted. To
be effective, certain types of control and analysis require
more frequent feedback than others. Forms 6 through 8 reduce
the data contained in the first five forms as well as other
information available to the accounting department.
Operations summary (Form 6). This report summarizes system
operations and associated operating costs. The report can be
for the whole system or for individual stations, since it is
a critical cost control mechanism. The report should be prepared
monthly. The accounting department compiles it and forwards
copies to the supervisor and the head of the sanitation department.
The total unit costs presented, as well as unit costs for the various
centers, indicate where excessive expenses were incurred. In
addition, various measures of efficiency are shown to isolate the
cause or causes of high operating costs.
Shredder evaluation report (Form 7). The data accumulated
on this form represent the total and individual costs of operating
the shredder based on the information gathered from the daily
maintenance forms. Statistics are accumulated separately for each
piece of shredder equipment such as the push pits, feed conveyor,
shredder, and out feed conveyor; these statistics allow efficiency
and cost to be evaluated. The data may also be used to determine
the life expectancy or wear rates of each mechanical piece. Since
this decision involves long-term assets, only quarterly or semiannual
reports are necessary. More frequent preparation would not sub-
stantially improve decision-making that would minimize operating costs.
Total cost summary (Form 8). All the activities and costs
associated with shredder operations for a selected period are
compiled on this report from data available in the shredder
operations summaries and on the facility and equipment inventory
forms. The combined operating expenses and the depreciation and
interest figures represent the total cost of operations for the
period. The report also summarizes the sources and amounts of
revenues associated with the system's operation. The accounting
department can complete this form quarterly or semi annually and
send it to the head of the sanitation department or his equivalent.
Report Flow Summary
A brief summary may help to put the system in perspective.
The personnel directly engaged in shredder activities complete
data accumulation forms daily and transmit them periodically
14
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FORM 6
OPERATION^ SUMMARY
For period.
to
TOTALS
POLID WASTE
SKUEDDER
COST
CENTER
WASTE
PAUL
COST
CENTER
REPAIRS
AND
MAINTENANCE
COST
CENTER
Factor
Tons received
Average tons/day operated
Total operating cost
Total operating cost/ton
Labor cost/ton
Parts and supplies cost/ton
Utilities cost/ton
External charges cost/ton
Overhead cost/ton
"Cost center" cost/ton
Tons/hr. of operation
Percent volume reduction !
"Cost center" cost/ton
Tons/number of trips to disposal site
Labor hrs /ton
"Cost center" cost/ton
Repair and maintenance
cost/hr. of operation
Waste haul percent
Shredder percent
Percent time vehicles down
Percent tine shredder down
Amount for this period
Percen
Budget
X
X
X
X
X
variance from
Budget last period
X
X
X
X
X
Instructions: This form is to be filled out by the accounting department
based on information from the previously compiled forms.
15
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FORM 7
SHREDDER EVALUATION
Shredder
Identification
For period.
.to
Equipment
identification
TOTALS
AVERAGES
BUDGET
Mrs. down
Mrs. down/total hrs.
X
Repairs and
maintenance cost
Repairs and
maintenance
cost/hr.
X
Total
cost/hr.
X
Instructions: This form is to be filled out by the accounting
department based on previous data forms.
16
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to the accounting department. The latter collates the information
and adds additional data it has on file to complete summary reports
on performance, activity, and costs. These forms are then sent
back to the supervisor for control purposes. In addition, selected
summary reports on total costs and equipment performance are com-
piled and forwarded to the supervisor and to his immediate superior.
System Utilization
Only with efficient and intensive utilization of the information
generated by the accounting system and its forms can the additional
time, effort, and money required to implement and maintain it be
justified. The system's intensive use promotes two major objectives-
quality control and cost control. All the factors that affect the
quality and effectiveness of shredder operations can be translated
into costs, but cost control should not be equated with economizing
at the expense of quality. On the contrary, once an acceptable
level of operations and costs has been achieved, the system can
help the supervisor maintain quality control.
Effective control requires timely recognition and assignment
of responsibility for any increased costs. Comparing unit costs
(cost per ton of waste shredded) with the current budget and that
for the corresponding period of the preceding year helps pinpoint
excessive expenses. This approach facilitates the analysis of
costs, independent of changes in the level of activity. Cost
center breakdowns help single out the factor or person responsible
for increased expenditures, and this allows corrective action to
be initiated.
WCT1185
£ U S GOVERNMENT PRINTING OFFICE: 1975- 629-552/620
18
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