Sorting line: cheap input costs more

“For ten years I negotiated one thing — the input price. I pushed it to nine hundred hryvnia a tonne and wrote that into the contract as a win. Then someone worked out the cost of the tonne I sell out of that input. Six thousand eight hundred. I sell at five thousand seven hundred,” — that is how Ihor Pashchenko opened the conversation. He owns a recyclables sorting line in Dnipro.

The picture is familiar to any yard. The weighbridge at the gate works, the cabin sorts, the press turns out bales. There are three suppliers, and every contract comes down to the price of a tonne at the gate. Cheaper input counts as a good purchase.

The arithmetic breaks where you are not looking. The line buys tonnes and sells fractions. Between those two tonnes sits everything that never sells.

Below we split the line into two units. A tonne of input and a tonne of useful material — and we get to why the cheapest supplier turned out to be the dearest.

Credit for the first contract

Ihor started with a yard that held two trucks. He took cardboard and PET, baled by hand, drove it to middlemen. Everything was counted in his head and it added up to the kopeck.

The turning point was the first large cardboard contract. It needed steady volume, and volume means a line, not a yard. Ihor took a loan and put up a picking cabin.

Then came the weighbridge, the sorting cabin, the baler and the residue bunker. Volume grew to 1 800 tonnes a month. With the volume went his sense of where the money was.

Profit did not fall. It simply stopped growing the way tonnage grew. Ihor put that down to market prices and to the season.

“While volume was small, I saw every batch at purchase. Now I see a monthly report. It holds two figures: what came in and what went out. The landfill sits on a separate line at the bottom. It is not part of the price of material.”

Input price versus real cost

For years Ihor ran on one number. The price of a tonne at the gate. That is understandable: it is what the contract fixes and what you haggle over.

But the line does not sell what it brought in. It sells what it sorted out. Part of the input goes to landfill, and the line pays for that trip too.

So the cost of a useful tonne is counted differently. Input price plus sorting plus haulage of what will not sell. And then all of that divided by the useful share.

The input price is not the cost, only a part of it.

The last step is the one that matters. Dividing by the useful share reorders the suppliers. The dirtier the truck bed, the smaller the number you divide by.

Ihor had felt this before. He called mixed material from the landfill “heavy feedstock” and knew it meant more work. Only tonnes are not multiplied by a label, and cost is.

Where the selling price forms

At the cabin exit there is no such thing as “recyclables”. There is cardboard, PET, film, glass, aluminium. Each fraction has its own buyer and its own price.

Cardboard goes out in bales to a middleman under contract. PET is taken separately, for a reprocessing plant. Aluminium travels in small loads, but pays the most.

Ihor looked at revenue as a single sum. His blended price of a useful tonne is 5 700 ₴. The figure is correct, but it hides all the mechanics inside itself.

Fraction	Share	Price, ₴/t	Contribution to blended price, ₴
Cardboard	38%	3 400	1 292
PET	16%	11 500	1 840
HDPE	9%	9 800	882
Film	12%	4 200	504
Glass	17%	900	153
Aluminium	3%	31 800	954
Other	5%	1 500	75
Total	100%	—	5 700

Look at the last column, not the third. The price of a fraction decides nothing on its own. What decides is price multiplied by share in the bale.

So the line “cardboard prices have fallen” decides less than it seems. Cardboard gives 1 292 ₴ of the blended price. PET and HDPE together give more than that.

Three percent of aluminium outweighs seventeen of glass

Aluminium is 3% of the useful part. That is the smallest share in the whole table. Its contribution to the blended price is 954 ₴.

Glass is 17%, almost six times more. Its contribution is 153 ₴. The reason is the price: aluminium goes at 31 800 ₴ a tonne, glass at 900 ₴.

900 ₴ of glass and 900 ₴ of input are different nine hundreds

The figure 900 ₴ stands twice in this article, and it is about two different things. The first is the price of a tonne of glass at the exit. The second is the price of a tonne of mixed material at the gate. There is no arithmetic link between them.

Judge a fraction by its contribution, not by its price.

What the monthly report missed

The bookkeeping Ihor lived with for those years is familiar to any yard grown out of two trucks. There is not a word about equipment in it.

• Tonnes at the gate were treated as goods. The weighbridge showed 1 800 t for the month, and that figure went into the plan. How much of it would sell was not asked.
• Suppliers were compared on input price. Contamination is the share of a load that will not sell. It was discussed in words, not in the calculation.
• Sorting sat as one line for the whole plant. Labour, power and the press shared one basket. Nobody broke it down by supplier.
• Residue was called waste. Landfill tickets were filed in a separate folder. Nobody added them to the price of material.
• Revenue was viewed as a single sum. Fractions rolled up into a blended price, and nobody looked further into the table.
• The cost of a useful tonne did not exist. That line was simply absent from the summary — neither overall nor per supplier.

Six points, and all of them in the accounts. Not one is about equipment or about the people in the cabin. So neither the process engineer, nor the weighbridge clerk, nor Ihor himself saw them.

Taken one by one, each point looks minor. Together they give one result: the owner sees tonnes and does not see the money those tonnes bring.

Contamination costs you twice

This is where the whole calculation breaks. Contamination enters the accounts from two sides. It is not one problem but two.

First it takes away what can be sold. A tonne with 60% contamination gives 40% for sale. The rest stays on your yard.

Then it adds a cost. What is left is residue. It has to be hauled to landfill. Haulage and the landfill tariff together come to 1 400 ₴ a tonne of residue.

Contamination cuts revenue and raises costs.

Sorting works differently. Labour, power and the press are 980 ₴ a tonne of input. The cabin pulls through what will sell and what will go to landfill alike.

980 ₴ and 1 400 ₴ are measured in different tonnes

The two figures stand side by side and are easy to merge. 980 ₴ is for every tonne that drove onto the weighbridge. 1 400 ₴ is for every tonne that drove out to landfill.

To add them, the second has to be converted into tonnes of input. At 20% contamination that is 280 ₴. At 25% it is 350 ₴. At 60% it is already 840 ₴ a tonne of input.

What the supplier report showed

Ihor brings in 1 800 tonnes a month from three sources. Separate collection from residential complexes. Commercial premises. And mixed material from the landfill.

Their input prices differ, and that was the only thing Ihor compared. Now let us lay out everything else that happens to those tonnes.

Supplier	Tonnes/mo	Input price, ₴/t	Contamination	Useful	Revenue, ₴/t input	Residue, ₴/t input	Costs, ₴/t input	Margin, ₴/t input	Cost of a useful tonne, ₴	Total, ₴
Separate collection, housing	450	2 100	20%	80%	4 560	280	3 360	+1 200	4 200	540 000
Commercial premises	750	1 850	25%	75%	4 275	350	3 180	+1 095	4 240	821 250
Mixed from the landfill	600	900	60%	40%	2 280	840	2 720	−440	6 800	−264 000
Total	1 800	—	—	—	—	—	—	—	—	1 097 250

The third row holds the best input price in his contracts. Input at 900 ₴ against 2 100 ₴ from the first. More than twice as cheap.

Now look at the second column from the end. A useful tonne from the cheap input costs 6 800 ₴. From the dearest input it costs 4 200 ₴.

The last column is worth reading twice. The first two suppliers give 540 000 ₴ and 821 250 ₴. The third takes 264 000 ₴ back.

“I put this report on the table before the purchasing round. Everyone looked at the third column — at the input price. I looked at it myself for ten years. Decisions are made on the tenth: that is where the cost of a useful tonne sits.”

Cheapest input, dearest tonne

The whole article fits into one row. Input at 900 ₴ is more than twice as cheap as input at 2 100 ₴. And a useful tonne out of it costs 6 800 ₴ against 4 200 ₴.

And that is already dearer than Ihor sells it for. The selling price is 5 700 ₴ a tonne. Every such tonne leaves the yard at a loss.

Cheap input does not mean a cheap useful tonne.

This is not an error in the calculation. It is the consequence of division. You pay for the whole tonne and sell 40% of it.

“What stopped me was not being in the red. What stopped me was that I had set it up myself. For ten years I pressed on the input price and signed up extra volume. Every one of those trucks hauled a loss, and I counted it a good purchase.”

4 200 ₴ and 4 240 ₴ — why they come out almost the same

The first two suppliers differ at the gate. 2 100 ₴ against 1 850 ₴ — the second is cheaper. And his useful tonne is even dearer: 4 240 ₴ against 4 200 ₴.

The difference is small, and that is exactly why it is telling. The cheaper input of the second is eaten up by higher contamination. Eaten up in full, and then some.

Two different units of account

There are two different tonnes in this story. The tonne that drove onto the weighbridge. And the tonne the buyer's truck took away. Confusing them is expensive.

The selling price of 5 700 ₴ is about the second tonne. Revenue per tonne of input is about the first. It is always lower, and every supplier has his own.

For the first, a tonne of input brings 4 560 ₴. For the second, 4 275 ₴. For the third, 2 280 ₴. Same line, same blended price.

Why 2 280 ₴ does not even cover 2 720 ₴

Take the third supplier. A tonne of input brings 2 280 ₴. That same tonne costs 2 720 ₴: input, sorting and residue haulage together.

The difference is minus 440 ₴ on every tonne. Over 600 tonnes that is 264 000 ₴ a month the line did not earn. And those tonnes were brought in, weighed and sorted.

Decisions are made in tonnes of output, not input.

Residue as a cost line

Residue is what is left after the cabin. It cannot be sold. It can only be hauled away and paid for with a landfill ticket.

Ihor has 637.5 t of residue a month. That is 35.4% of everything that drove onto the weighbridge. More than a third of the input the line buys only in order to haul it away.

Haulage and the landfill tariff for the month come to 892 500 ₴. Those tonnes bring no revenue at all.

Tonnes of residue stand nowhere as goods. In the bunker they are already paid-for material waiting for a truck. In the summary they are absent entirely, because selling them is impossible.

“Residue was not a cost line for me. Waste — and what is there to count. Then we totalled the landfill tickets for the month. Almost nine hundred thousand. For that money you fit out the line, you do not wait for a better price.”

214% of profit on residue haulage

Put 892 500 ₴ next to profit. The line's profit for the month is 417 250 ₴. Residue haulage is dearer than the whole monthly profit.

That is 214% of it. The figure only surprises at first glance.

Residue is not a by-product of production. It is part of the material you bought with money. And then paid for a second time, at the landfill.

You pay for residue twice: at the gate and at the landfill.

The month in summary

Now the whole line in one column. First revenue and contribution, then fixed costs, and profit at the end.

• Revenue from fractions sold — 6 626 250 ₴.
• Contribution after material, sorting and residue haulage — 1 097 250 ₴.
• Fixed costs — minus 680 000 ₴.
• Profit — 417 250 ₴, that is 6.3% of revenue.

The second line is the sum of three totals from the supplier table. 540 000 ₴ plus 821 250 ₴ minus 264 000 ₴.

It is contribution, not revenue, that shows the work of the line. Revenue of 6 626 250 ₴ looks solid. What reaches fixed costs is 1 097 250 ₴.

Fixed costs depend neither on tonnage nor on contamination. They are the same every month.

• Salaries of technical staff — 168 000 ₴ for engineering and technical personnel.
• Depreciation of the line — 240 000 ₴.
• Rent of the yard — 96 000 ₴.
• Repairs and maintenance — 84 000 ₴.
• Administrative costs — 92 000 ₴.

680 000 ₴ does not know what you brought in

The cabin, the press and the weighbridge stand there regardless. It does not matter what material runs through them. Depreciation of 240 000 ₴ is the same for separate collection and for mixed material from the landfill.

So all the work on input quality hits profit directly. Fixed costs do not react to it at all.

Where the margin hides

417 250 ₴ on revenue of 6 626 250 ₴ is 6.3%. For a line with this equipment that is not much.

Looking for the reason in fixed costs is pointless. 680 000 ₴ for a yard like this is ordinary money. There is nothing to cut there.

The reason sits higher up. The contribution of 1 097 250 ₴ is already reduced by the 264 000 ₴ loss from the third supplier. And by the 892 500 ₴ of haulage that sits inside it.

Count it another way. If the third supplier simply broke even, the month's profit would be 264 000 ₴ higher. That is more than half of the whole profit as it stands.

Input quality eats the margin, not fixed costs.

A decision worth 426 000 ₴

The owner's first thought is always the same. Drop the bad supplier and forget him. Ihor counted three moves before deciding anything.

Move	What changes	₴/mo
Extra picking of mixed material: contamination from 60% to 50%	margin from −440 ₴ to +270 ₴ a tonne of input	+426 000
Drop mixed material from the landfill	minus 600 t of input a month	+264 000
Price at which mixed material breaks even	460 ₴/t instead of 900 ₴/t	—

The first move is stronger than the second, and that is the main thing in the table. 426 000 ₴ against 264 000 ₴.

Pulling more useful material out of bad feedstock pays better than refusing it. Ten points of contamination flip the margin from minus to plus.

Re-sorting material is cheaper than giving up volume.

The honest price of the second move

Dropping a supplier looks simple, but it has its own price. 600 t out of 1 800 are freed up, and fixed costs do not fall by a single hryvnia.

The space on the line has to be filled with something. Whether there is something to fill it with depends on market supply, not on your decision.

The third row is not a move at all but a limit. At an input price of 460 ₴ instead of 900 ₴ this supplier stops being loss-making.

460 ₴ is almost half of the current 900 ₴, but not exactly half. And the main thing: it is not “profitable”, it is exactly break-even.

“I came with a figure and said: either four hundred and sixty, or we do not work together. They told me such prices do not exist on the market. Then we rewrote the contract and put contamination into it. Before that there was one batch where almost everything went into residue. I paid for it twice: at the gate and at the landfill.”

One metric every month

Ihor did not drop the supplier. He chose the first move: he fitted the line with an extra picking station for mixed material. The rest of the changes are in the accounts, and almost all of them at the weighbridge.

The price of the decision is known as well. A picking station, two people on it and part of the space on the line. Ihor gave up haggling over the input price deliberately.

Every truck now goes through a sample check for contamination. The percentage is written in the log beside the weight. The supplier sees it at once, not at the end of the month.

Sorting and residue haulage were split out by supplier. Not one sum for the whole line, but each source on its own. It turned out the basket was shared only in the accounts.

A new line appeared in the summary — the cost of a useful tonne. Per supplier separately, and beside it the selling price of 5 700 ₴. That is the metric Ihor watches every month.

The first month of the new log was unpleasant. It turned out contamination swings from truck to truck, and the monthly average smoothed it out. Now every load is visible on its own.

Negotiations changed as well. The subject of bargaining is now contamination, not the input price. A cheaper truck with more dirt no longer wins the purchase.

One metric: cost of a useful tonne against selling price.

The takeaway for owners. If you buy material of variable quality, the input price tells you nothing. Calculate the cost of the unit you actually sell. Add processing and haulage of the unusable to the input price, then divide by the usable share. Put that number next to your selling price — and you will see which supplier brings money and which takes it away. Any processing works the same way: grain with impurities, scrap metal, milk, recycled plastic, timber.

A checklist for the owner

• Write down the contamination of every truck. Not in words and not by eye, but as a figure in the log beside the weight.
• Calculate the cost of a useful tonne. Input price plus sorting plus residue haulage, divided by the useful share.
• Put the selling price beside it. For Ihor that is 5 700 ₴, and one of the three costs has already passed it.
• Convert residue haulage into tonnes of input. 1 400 ₴ a tonne of residue becomes 280 ₴ for one supplier and 840 ₴ for another.
• Split sorting out by supplier. 980 ₴ a tonne of input is a shared figure, but the tonnes belong to each supplier.
• Count residue haulage as a percentage of profit. For Ihor that is 892 500 ₴ against 417 250 ₴, which is 214%.
• Calculate the break-even price for your cheapest supplier. If it is far from the current one, bargaining over price will no longer save anything.

Money does not vanish — you just do not see it

People think a sorting line is all about equipment. The cabin, the press, the number of hands on the belt. In truth the equipment decides whether the line runs at all.

How much it earns is decided by something else. What exactly you brought onto the weighbridge, and how much of it will go to landfill.

The bottom line does not lie, though. 417 250 ₴ of profit is the truth. But it does not say that one supplier took 264 000 ₴, and the residue bunker 892 500 ₴.

Ihor still takes mixed material from the landfill. The difference is that now he knows its price, and the subject of his bargaining is different.

As soon as the cost of a useful tonne becomes its own line, the main thing is visible. You were haggling over the wrong number.

How to see this on your own line

Everything above rests on one table: not the month in tonnes of input, but each supplier as a row, with the input price, the contamination, the residue haulage and the cost of a useful tonne side by side. As long as the haggling is over the input price, you see neither that the cheapest material yields the dearest useful tonne, nor that the residue costs 892 500 ₴ a month. When the same data is collected automatically, the cost of the tonne you actually sell becomes visible — which is exactly why owners of small and medium businesses use Finmap: to see the financial picture rather than piece it together after the fact.

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• Waste collection: one district feeds, the other eats
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Topic foundation: Management Accounting Explained: What It Is and Why Owners Need It