Contrary to popular belief, a reduction of a few percentage points of the
production cost/scrap does not translate into the same percentage of
increase in profits.
The increase is a more complicated function.
To study the relationship further see Figure
where profits are plotted as a function of the scrap.
A linear function describes the relationship
when the secondary operations are neglected.
The maximum loss occurs when all the material turned out to be scrap
and it is referred to as the ``investment cost''.
On the other hand maximum profits occur
when all the material becomes products (no scrap of any kind).
The breakeven point (BEP) has to exist somewhere between these two extremes.
Typically, for the die casting industry, the breakeven point lies within the
range of 65%-75% product (or 25%-35% scrap).
Typical profits in the die casting industry are
about 20%.^{}

This is a very substantial difference. Therefore a much bigger reduction in scrap will result in much, much bigger profits.

to put figure about this point (relative profits)

copyright Dec , 2006

The pdf version is also available here