Management Accounting: Making It World Class

Mary Williamson, Class of Customers in the automotive window glass industry are changing their purchasing practices. Product costs are determined using traditional cost allocation practices. These cost systems focus on solving the needs of inventory valuation and financial reporting. Overhead is all other costs not directly related to the product.

Traditionally assigned based on labor hours or square footage, these measures are no longer appropriate due to the changes in manufacturing technology. The challenge is where do accountants assign overhead now. Overhead in a glass plant There are three major categories of overhead in a glass plant 1 Production department overhead: Traditionally allocation was in two-stage process. First, group by department those costs directly traceable to individual production cost centers.

This is reasonable if the costs assigned are truly identifiable. Second, these groups are allocated to products based on the number of labor hours or machine hours in each type product. This is reasonable if the cost center resources consumed by each product are reflected in the allocation bases. A cost accounting system should measure cost center resource consumption taking into consideration certain productive or distributive resources that are finite.

The traditional cost accounting system doer not allow for this. Throughput in a new cost system Product costs should be built around the consumption of the most critical resources. Bottlenecking can limit total plant throughput. These cost relationships are potential cost pools that make up the activity based cost system.

Throughput only relates to product volume that meets current customer demand. Inventory has no throughput value. Inventory just means an increase in storage costs and cash outflow and risk of parts stockouts. Throughput is used to develop a product mix strategy and determine the benefit of adjusting product prices. Spotting bottlenecks can result in production improvements that increase plant profitability. These costs represent product consumption of resources that would be increased readily within he budget period if product priority or volume were changed.

Production related fixed-costs fall into three categories 1 traceable to plant processes 2 machine depreciation 3 labor rates. A general overhead plus depreciation cost per constraining hour figure is helpful, because you can see the freed up time in a resource from dropping one product. These saved costs can be used toward another product. Bottlenecking may occur in different departments as investment and operational decisions effect production activity.

These changes will change allocation. Product profitability should not be change from that determined by throughput value by the allocation of indirect fixed costs. Through cost accounting and identification of bottlenecks, the firm can coordinate what it is able to sell with what produced. Cost allocation determines adequate selling prices. Throughput value is an important strategy to determine product profitability and will allow best use of scarce resources. Sauers, Class of This article deals with the new views that organizations have about achieving quality.

What I found interesting is that these views are not radically different rather they encompass they old views of quality in a different context. Quality assurance has evolved from being a production afterthought to a process which is integrated along the production line. This quality division was responsible for stopping production if the product did not meet quality standards. This in turn, created deceptive employees who did whatever they had to do to ensure that the product they had made would pass inspection. Today, however, it is the actual production unit that is responsible for shutting down a line.

The production unit is responsible for building the quality products and dealing with the costs associated with assuring quality. However, the new thought process is to have operators inspect products through each stage of production thereby being responsible for the quality of production in their division. The key to making this type of quality assurance successful is for managers to motivate and instruct operators as to what is required and how to achieve it.

The new thrust is on quality planning during the manufacturing process. The new view that high product quality can mean low cost was proven by Jaguar in They decided that product quality does not have to be a trade off for cost. Productivity and quality were once viewed as separate, however, General Electric proved that by establishing planning and station controls their amount of defects decreased.

This lead to the belief that taking time to make it right the first time pays off in the end. Another change in quality emphasis is that defects not only can but should be reduced to zero. The mission of a manufacturing division is to strive for perfection. This change really came into effect after David Garvin conducted a quality study of Japanese air conditioners versus American air conditioners. However, the new belief is that automation, will not only reduce labor costs, but also improve quality.

So the primary focus of any product quality improvement program is to have an external focus. This type of program must also reduce manufacturing loss while enhancing the product. If a quality improvement program does not achieve these two goals then it is missing its mark. Another new view of quality is that quality should no longer just be focused on manufacturing, rather it should be focused on all business functions.

The internal view of quality must be supplemented by an external view that addresses: The result of all of these new views on quality is summed up with the companies who emphasize that quality is a focus not just a function. This new quality emphasis is being integrated throughout the entire organization.

The quality focus must become part of company philosophy and be a routine part of the institution in all their business decisions and actions. The new qulaity-minded manager must focus his resources on several things: Ellis, Class of There are three defenses against breakdowns: With the emphasis on low inventories and just-in-time production, the last two defenses are becoming more important.

Maintenance strategies have five possible elements: These five form a maintenance mix that varies from plant to plant, depending on the needs, goals and resources of each plant. Reactive maintenance requires workers to move fast to minimize the costs of a breakdown.

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The emphasis here is on loss control. Manpower is the primary cost incurred in reactive maintenance. The actual costs depend on the desired level and time of response. Dispersal of manpower throughout the various facilities often cuts down on the response time, and thus the cost, of reaction. Regularly scheduled preventative maintenance is designed to reduce the probability of a breakdown occurring. Many managers erroneously assume that preventative maintenance is a high-cost option. Actually, the labor and lost sales costs of down time may far outweigh the cost of preventing the breakdown in the first place.

Two inherent characteristics of preventive maintenance help reduce the total cost of maintenance: Inspection can help a manager find out how well a preventative maintenance program is working. It may also determine whether maintenance has occurred on a piece of equipment. Companies often use backup equipment when the cost of a breakdown is very high or time constraints do not allow them to carry out proper preventative maintenance.

This cost may seem high until one compares it to the cost of a breakdown. Companies may also use backup equipment to supply extra capacity in certain situations. Standardization of backup equipment makes this use much easier. It also lowers backup equipment cost. If a company has only one or a few types of machines, it only needs one or a few different types of backup equipment. Companies often use equipment upgrades as maintenance rather than purchase new equipment.

Upgrades increase reliability, facilitate repair, and increase the throughput of an organization. Accounting for the cost of upgrades depends on the type of upgrade and the expected lifetime of the equipment. A Sample Case In a domestic automobile manufacturer was operating two shifts per day producing cars. The firm currently used only a reactive maintenance program.

The company decided that it should increase its maintenance costs to reduce its breakdown costs. The company dispersed its maintenance crews to cut down on the time it takes to travel to the site of the breakdown. This required a greater investment in tools, spare parts, and communication equipment. It also meant the company would devote more manpower and floor space to the maintenance department. The company also upgraded its equipment. They bought overhead and slack detectors that brought the diagnosis time on a breakdown down from 25 minutes per day to 4 minutes per day.

The company also added a backup conveyor line to guard against down time should one of the conveyors fail. The extra conveyor also served to increase capacity during peak times. The company also began inspecting the conveyors and keeping track of the maintenance. The addition of backup equipment and the upgrades reduces down time from 70 minutes per day to 60 minutes per week. The company dramatically reduced downtime due to the increased response time and improved equipment They were even able to staff a preventive maintenance team from one of the reactive maintenance teams that was no longer needed.

This preventive maintenance team eliminated motor breakdowns almost completely and reduced average downtime to 5 minutes per week. The benefits of maintenance clearly outweighed the costs. The company saved several million dollars a year because of improved maintenance. Len White, Class of The main idea behind this article is to state that transfer prices should be established to accomplish the goals of the organization. In this article Lesser identifies a fictitious corporation that has recently implemented a new line to produce widgets for sale to a sister division.

One employee came to the divisional president with a proposal to establish an assembly line to produce the widget. On the surface the proposal sounded ingenious, but at the end of the year, a new standard cost would be developed which would result in a lower contribution margin per unit, and thus lower profits. Once again, the corporation as a whole would greatly benefit, but the division would be worse off.

And, considering that the division manager gets a bonus based on the profits of the division, the proposal was rejected. The current policy provided the employees with a disincentive to reduce costs. This provides profits that can cover development and other fixed costs. In order to solve the problems the corporation was having, they decided to reject the proposal to establish an assembly line. And, they would increase the cost to their sister division only if there was an increase in the standard cost, and only if the market would allow it. Jeff Fackler, Class of 97 Should a company make or buy components used in its products?

This question should not be answered hastily. There are many factors to consider before a decision can be made. Price is obviously one of the major factors in determining whether to make or buy. Even when the quoted price is lower than internal manufacturing cost, a decision to make these components can still prevail. Once a decision is reached whether to make or buy, the market conditions should still be monitored.

However, there are situations which the only alternative is to buy. Mainly, when the company lacks both the facilities and knowledge required to produce the required part at an acceptable quality level. The authors presented several examples of whether to make or buy. Investment opportunities can play a major role in this decision. A company purchasing a component at high levels may think investing in equipment would be an excellent alternative.

By doing this, they would reduce both the component cost and lead time. However, further analysis could indicate that investing the money in another alternative would generate a higher return. In this case buying the part would be the best alternative. As in the previous case, the component may be purchased at such a level that manufacturing the part initially may look good. However, an analysis reveals the market is very competitive, creating low profit margins and that the part is very difficult to manufacture. Because the market is so competitive, prices should stay low and a decision to buy the component should be made.

Generally it is unwise to buy from a competitor. A company must remember that they are merely adding profits to their competitor. Buying a part from a non-competitor may actually end up building business for your competitor. For example, a company may decide to start buying considerable amounts of a component outside. This increased business for the new supplier could allow it to reduce its prices. This supplier could then turn around and sell this component to a direct competitor at a reduced price, keeping the initial companies price the same. There are situations were it pays to make and use an unbranded component rather than be controlled by the patent monopoly.

Also, a company should investigate why a supplier can produce a component at a reduced price. The authors gave an example were a company decided to start purchasing a component at a reduced price and dismantled their own equipment after a year of purchases.

Shortly after a year, the supplier had an abrupt price increase. Further investigation revealed that the initial price was calculated with the supplier using by-product from another part it made. When the accumulation of the by-product was depleted the price went up. A decision on whether to make or buy should not only focus on the given component in question. There may be other components that are associated with it and what may look advantageous may turn out disastrous. The net effect must be examined.

These examples provide a good illustration of what must be considered before making a decision to make or buy. Brad Smith, Owen Class of A professor of management at the University of Chicago interviewed executives from several firms noted for having excellent quality programs, many of whom are Baldridge Award winners. Many managers have a misguided notion of what leading actually is. This may cause initial results but then most people go right back to their old ways. Good leadership is about planning, organizing, and training your people. Good leadership produces results.

Thinking that planning devolves from financial or marketing goals. In many organizations, planning starts with management setting goals for financial and market growth. Customer satisfaction is often ignored in this process. Planning should not be a horizontal process working from the top down, but rather a vertical process working from the customer in.

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Believing that being close to the customer and planning for customer satisfaction is sufficient. A systematic approach to customer satisfaction is needed to overcome this misconception. All aspects of a business should have goals and incentives tied to enhancing customer satisfaction. The most effective way to do that is to record data regarding all interactions between the firm and the customer. Believing that quality means inspection. Getting rid of the root causes of defects is much more effective than reducing the number of defects that go undetected.

Inspection only reveals a percentage of the defects. Believing that quality improvement is too expensive. Doing the job right the first time actually can cut costs. Tasks being redone and materials being scrapped increase costs. In most cases, with quality all costs tend to go down much sooner than expected. This is because quality improvements in one area can cut costs in other areas. Out puts of one process become the inputs of another. Managing by intuition and not by fact. Intuition and judgment are not as sound as we believe them to be. The brain subconsciously distorts recalled predictions to be closer to the actual outcome, thus giving managers a distorted sense of their own judgment.

Managing by fact helps to overcome this. Most Baldridge Award winners tend to collect and use a great deal of information. Using misguided incentives and developing a distorted culture. Incentives will have little impact if the are wrong for the culture. Managers will sometimes take actions that cut back on costs but will adversely affect the company long-term. Managers who deal the best with their crises are often promoted but no one ever questions why this manager had a crisis in the first place.

It is important to reward only those actions that are truly beneficial to the company. Changing targets each year. Goals that are changed often only confuse management and employees. Failing to follow the best practices. Companies should determine and follow the best practices. Benchmarking is one way to learn from the best. The most difficult aspect of benchmark is getting people to do it. This is because it means that people must acknowledge that they are not the best and that they must improve. Believing Baldridge Award examiners are stupid. Many firms make the mistake of submitting what is actually public relations pieces to Baldridge examiners.

What firms need is closely monitored and documented quality systems and processes, not PR packages. Examiners are smart enough to recognize the difference. Miller, and Thomas E. Vollman present a means to integrate cost accounting with management goals and strategies. This main theme of integration between the two is based on the simple fact that traditional cost accounting methods are outdated. They begin their argument with three case studies of management making flawed decisions because they based such decisions on standard cost accounting and control systems.

They then proceed to illustrate such shortcomings along with a remedy as to how cost accounting should perform. Their remedy is called CAGS or Cost Accounting by Goals and Strategies, a method by which a matrix is used to integrate management goals and strategies with operating units. After reading the article, I was very refreshed by its alternative and appealing approach to cost accounting.

The authors do a tremendous job in "setting the stage" by presenting the three case studies and using them as a basis for the remainder of article. Afterwards, they describe in strong detail the flaws in current cost accounting systems by inherently pointing out that management must have a "macro" view of their operations versus a "micro" one. This is particularly important since costs have evolved to the point where they span across several parts or units of an operation rather than to one individual unit. The authors add to this point by the fact that managers simply examine costs and not how they are collected and that managers also treat overhead incorrectly in their organizations.

Basically, a narrow mindset is quite prevalent with managers when interpreting costs. Naturally, the authors then proceed to offer a solution by introducing CAGS. They emphasize that such an approach is a custom one that evolves and grows with the organization. This is the strong point of the article since the authors understand that cost accounting should change with the ever-changing goals and strategies of the organization.

With a strong degree of conciseness, the authors then present the CAGS system at work, highlighting its details, intricacies, and benefits through easy to understand charts and text.

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Finally, the authors point out the flaws with their approach such as it being time-consuming and difficult to implement. Such objectivity and self-criticism adds much value to the article. In conclusion, I greatly enjoyed this article. It was very well-written and organized with more than sufficient examples. Any student who has had introductory accounting could grasp the authors' message and apply their methods in the real world.

The article was essentially simple and easy to understand with the CAGS being a realistic, practical method that should be used in any organization. I especially liked the fact that cost accounting should no longer be a static discipline but rather a dynamic one that changes with the corporation and the real world.

Arguello, Class of The article suggests that it is important for management to be able to plan into the future while considering a products life cycle. During this phase the product sales are low. A company which has high inventory of a product in decline will witness a reduction in their cash position. This is primarily because of the high inventory costs. The need for a company to plan its production is evident. In order for management to be able to plan effectively they must be able to forecast accurately. An accurate forecast will be far enough into the future that it will account for the time spent on planning, the time it takes to receive raw materials, and the time it takes to manufacture the product.

The forecast will consider products currently in the pipeline. Products being built as a result of the previous plan will limit the amount to be built under the new plan. An effective plan will also establish inventory goals i. This is because different products have different demands. Lastly, the company must plan frequently on a monthly basis. Just-In-Time JIT manufacturing resolves the inventory problem and allows management to react faster to the changing conditions of a products life cycle, thus, enabling the company to forecast more accurately.

The authors of the article applied the concept of Just-In-Time manufacturing on a consulting project. They performed simulations assuming several demand schedules. They concluded that the more uncertainty with the demand for the product, the more significant the benefits of JIT became. Laurent Chardonnet Carrying inventory will lower the company's profit. JIT manufacturing is advocated to improve quality, reduce waste, lower WIP inventory and shorten planning period.

Shorter planning quickens reaction to change due to product life cycle and unpredictable demand. Therefore, JIT is not only restricted to the manufacturing process but can also apply to all upstream processes such as planning. Shortening the planning horizon and lowering inventory goals are part of the JIT management. In the case studied by the authors the net cash follows the product life cycle with a delay. When sales start to decrease, the net cash flow flattens.

If at this precise moment ending inventory remains from unsold goods, it will have a negative effect on the company's cash position. A shorter planning will recognize the sales decay sooner so that its effect on the net cash will be less severe. Similarly, planning is an on going sequence of lead times. Each sequence depends on the preceding one raw materials supplies come before manufacturing which comes before inventory build up.

By planning a zero inventory level JIT will remove the uncertainty created by the lead time of each sequence. Management is another source of delay. It takes time to gather sales data, to build forecast, to develop a SOP and to issue buy and build plans. The authors have developed a simulation model that takes into account all the elements cited above. At the end of the product life cycle the simulation carries the raw materials, WIP and finished goods inventories and evaluate their cost.

Based on 6 different demand curves, they observed that JIT manufacturing will benefit the net cash. But they especially observed that JIT management will dramatically improve the net cash to a bigger extent than JIT manufacturing. JIT management increases dramatically the profit at the end of the product's life. Because of these results the company can shorten its planning from a quarterly to a monthly period with a 6 months horizon.

Shorter forecasting also helps to faster adjust and correct past errors allowing a better inventory management at the end of the product life. Frequency of planning, age of information used in forecasting and inventory goals act as amplifiers. Tyson writes just prior to the widespread popularity of quantifying quality cost measures. He segregates them as: He recognizes that corporations often measure their progress toward quality management as the reduction in overall quality costs. After this brief overview he launches into explanations of actual research he conducted.

Tyson randomly chose of the Fortune and contacted their controllers. Of these, 94 responded. He found evidence that quality cost measurement consistency was highest among manufacturing industries who were forced to confront strong foreign competition p. The author polled the respondents on five correlation factors that linked controllership to measurement. He ran a regression analysis to determine that a combination of available resource, participation in team projects, and communication with quality function personnel were strongly related to quality measurement being in place.



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He found that the quality cost measures were used frequently for performance evaluations and simply to identify quality costs. He reported that among companies who strongly recommended the use of quality cost measures, a clear correlation between quality and profitability had been made. Johnson, Class of Target costing, also called cost planning or cost projection, is a cost management tool which is used to reduce the overall cost of a product over the life cycle of that product. In Japan, target costing is used on a large scale in automobile manufacturing electronics, machine tooling, and precision machine manufacturing.

Target costing can be used to reduce costs in the production, planning, and design stages of product development. Target costing has four major characteristics. It is used in the planning and design stages of product development. It is cost planning, not cost control. It is used mainly in, but not limited to assembly-oriented industries, and is used for the control of design specifications and techniques of producing these products.

Companies use target costing in different ways, and therefore implement it at dif-ferent stages of product development. Most companies, however, implement target cost-ing during the product design stage, and carry it through engineering and finally into pro-duction. Estimates for target costs are developed by looking at similar products and the costs they incurred during each phase of production. There are three methods generally used in setting target costs. The agreed upon target cost should only be attainable through considerable effort on the part of all parties concerned.

In addition to the industries mentioned earlier, target costing is being used increas-ingly in formerly labor intensive industries in Japan which have recently become highly automated, and tends to be least effective process industries. Tudor, Class of Managers are faced with the transfer pricing problem when their departments are established as decentralized profit centers. The issue becomes complex because managers are evaluated based on their profitability.

The authors attempt to introduce a way of benefiting from decentralization and yet eliminating the pitfalls of transfer pricing. They suggest using a dual pricing method. Transfer pricing policies used by decentralized organizations are market price, negotiated price, and pricing at out-of-pocket costs. The authors use an auto dealership as their example to explain the issue of transfer pricing.

The interactions that occur internally are known as transfer prices. The costs differ as they move from area to area. Gross outside sales all depend on the internal transfer prices. Problems with the 3 traditional transfer pricing policies: Market pricing also eliminates opportunity costs which hinders decision making. And because the higher associated higher costs are now carried in inventory, financial statements are affected.

As with market prices, negotiated prices have the same effect because the negotiated price is usually higher. Conflicts can also arise, and the process is time consuming. By using this policy, erroneous decision making is eliminated and capacity is flexible because is it a function of manpower. Dual pricing refers to the price charged to a buying department is the out-of-pocket cost incurred by the selling department. But the selling department is credited at the market price. The difference in the two figures is charged to internal sales in excess of assigned cost.

This policy will ensure that the revenue to the dealership is only shown by the prices that are charged to its outside customers. All managers are motivated to cut costs and maximize their profits. The cost of the benefits using dual pricing provides compensation benefits paid to managers. Although it is an additional expense, it is very controllable, and most importantly, it is measurable. Costs can be tracked easier and the profit of the company as a whole will increase.

Leschen, Class of Ravi Venkatesan introduces a new structure for the outsourcing decision. He contends that most manufacturers approach this decision from the wrong position. Instead of addressing the strategic significance of each part, most managers look at the "volumes and hassles" of individual parts. Additionally, traditional cost accounting systems have actually hindered efforts by hiding the real opportunities for cost savings. Without a comprehensive approach to the commodities as a whole, managers will continue to make poorly informed choices regarding insourcing versus outsourcing.

Venkatesan suggests that the key to proper sourcing decisions is, first, to determine whether the parts are strategic or non-strategic. In making this decision, the product must be broken into its subsystems. These subsystems are then evaluated in terms of strategic importance. This determination involves several considerations. Namely, is this a significant system to our customers and what kind of specialized assets and technologies are needed? Once these questions are answered, the company must then decide if its cheaper to "catch up" with the best supplier or if a capable supplier exists.

A component will then be judged strategic or non-strategic based on the economies involved in its market. Otherwise it will be outsourced with a close link to the supplier. In making these decisions, several key factors are always considered. Is in-house manufacturing competitive in quality and cost? Is in-house manufacturing cost-effective based on the investment necessary to bring the equipment and technology to par or better? In the case of an outsourced system, Venkatesan recognizes that employees with a thorough knowledge of the outsourced systems must be retained and involved in the design and implementation.

Typically, if a significant system is outsourced, a company should work closely with the supplier in its engineering. By doing so, the manufacturer can guarantee quality and keep knowledgeable personnel working with the system. Otherwise, the company will become too dependent on the supplier and lack the "architectural knowledge" required to maintain quality. This framework will improve the "make or buy" decision process. Simple, "commodity" parts will be outsourced to suppliers whose economies are greater. If a part is deemed "strategic" than the in-house efficiency will be evaluated.

If it is possible and cost-effective to be a leader in the production of that system, it will remain in-house. Otherwise, it will be outsourced. This particular decision gives lower level employees an opportunity to improve the efficiency in their division to avoid being outsourced. Caldwell, Class of To survive in business, a company must eliminate activities that do not add value.

Accounting activities must also be examined to see if they add value to the company. Without a value added accounting system, a company may perform well but will not be able to see where it is going. One area where accounting can be non-value adding is when budget compliance becomes more important than profit. Managers will cut prices too deeply or overload distributors trade loading just to make budget. This adds no value to the company and especially disrupts the production process and product quality.

This type of sales upswing at the end of the period is referred to as the banana sales curve. This non-value adding activity must be removed. Another area that companies get very hung up on is labor cost reporting. A company should first determine if labor is a significant cost to the company. There are several other things that companies do that are detrimental to the overall operation. One of these is the implementation of complex accounting based incentive plans.

If these plans are implemented without organizational changes to support it, the plan will actually increase costs. Another thing companies do that devalue the company is to concentrate on purchase price variances. This focuses the purchasing department on finding the cheapest parts and supplies without consideration for the lifecycle costs of the new purchase.

Although a part may cost less initially, it may actually add more costs to the overall process if new tools and procedures must be developed. If these problems exists in a company, the accountants need to implement a value added accounting system. These simple systems reveal information rather than covering it up and they also cost little to run. In addition, we want the accounting system to encourage cooperation between functional areas. Accountants could develop performance measures that evaluates the performance of all the managers in a related area.

For example, marketing and manufacturing could be linked so that the performance of each area depends on how the other one is doing. Also, the system should encourage continuous improvement. The idea that you are good enough is not acceptable. Large cost reductions come from many small reductions. Sooner or later you will score, i. A manager must also consider relevant issues.

Rather than looking at the purchase price variance, a manager should look at the lifecycle costs of the part. One of the most important things to remember as a manager is that skilled workers can do more to reduce your costs than almost anything. Properly trained employees will take matters into their own hands by solving problems and elevating their work standards. The accounting system must report the value that the company receives from this training. This information can be prominently displayed in the work area with the employees name and corresponding skills. This shows what the company gets the value added in return for its training.

By studying your best competitor you can learn if your operations are as good as they should be. You must know your competitors costs or you will be a victim of your own ignorance.

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Do these things, and you will have a value-added accounting system. Profitability does not result simply from controlling costs, it is also determined by quality and flexibility. Therefore many companies cannot rely upon cost information to make management decisions regarding profitability and competitive value. It must develop new information to achieve this objective. Employees perform activities, which in turn cause costs. Management needs to manage the activities which cause cost, and therefore it needs information based on these activities -- not information based on the costs incurred.

Activity-based information is concerned with the factors that drive the costs and profits. There are two types of activity-based information which should form the foundation of this new management accounting system. One is non-financial information. This information expresses how each activity delivers value to the customer. The new management accounting system, with the activity-based information it provides, allows management to react to the activities and see which activities add, or do not add, value. It does this by requiring management to analyze each activity to find its contribution to customer value and to find any causes of wasted efforts, or non-value adding activities.

By approaching the management decisions with information based on activities rather than information based on costs, companies will be able to perform more pro-actively. By consistently analyzing the activities for value adding and non-value adding characteristics, companies will be able to see future problems before they become big problems that are difficult to fix.

It would be possible to identify problems before they make a big impact on cost -- problems which would have been caught much later if the company was using a management accounting system based on cost information rather than activity information. Burt examines the elements inherent in effective partnerships between suppliers and manufacturers. Such a partnership should foster interdependence and respect.

Summaries of Articles on Management Accounting

There are several elements involved in motivating the creation of a strategic, non-competitive partnership between managers and suppliers. The first point to keep in mind is that the cheapest component may turn out to be the most costly. There are five critical areas involved in creating a successful relationship between a manufacturer and a supplier. The first area is the way in which the supplier is selected.

It has been demonstrated that the best way to select a critical supplier is through a team effort. This team should be composed of members from different departments, and should be able to keep the views of the company, and the possible future supplier, in mind when making decisions. The manufacturer should also allow the supplier to be active in the product design area from the beginning. Another way to motivate suppliers to meet desired quality levels is for manufacturers to implement certification programs, and provide timely feedback.

Manufacturers can also survey their suppliers to find out about their needs. The information from these surveys can be used to improve the relationship between manufacturers and suppliers. It can also be circulated by manufacturers within the industry to let others know of technology that they would like to see developed.

A partnership is based on trust, interdependence and respect. Managers must now design and purchase quality into the product if they want to make quality products at reasonable prices, contends the author. In order for the Purchasing Staff to be effective, the requirements for products must be explicit.

Establishing the correct input requirements requires a cross-functional effort. Marketing must be involved to identify the actual products to be manufactured and develop demand forecasts to facilitate the ordering of the correct quantities of raw materials and components. By cooperating with Purchasing during the development and design of new products, engineering excellence can be improved. By working with representatives from all involved departments, Purchasing can determine exact quality, price and quantity needs and function more effectively.

The author stresses this point by quoting Philip Crosby: Once these requirements have been determined, Purchasing is responsible for source selection and price negotiations. To begin, Purchasing may prequalify suppliers by evaluating their technical and physical capabilities and their managerial and financial soundness. Prequalifying ensures that the purchasing company will receive products that meet their specifications and demands, as well as builds a relationship that fosters cooperation between supplier and purchaser.

Once suppliers have been identified and relationships begin to form, Purchasing is able to better negotiate with suppliers for the best possible price. Purchasing is also responsible for maintaining supplier relationships and managing supply contracts. Through the efforts of the Purchasing Department, key players from both the buying and selling firms are able to meet and possibly exchange plant visits.

It allows both firms to offer technical assistance to each other and to quickly and efficiently solve quality issues. Additionally, Purchasing serves to motivate suppliers--extraordinary effort can be positively reinforced, while negative reinforcement can deter undesirable behavior--monitor quality by examining materials and process control data, request value analysis to improve design characteristics, and assist suppliers should they run into problems that temporarily compromise the integrity of their products.

The Purchasing function becomes more important as firms move towards JIT methods. Cultivating and maintaining the close supplier relationships necessary to make JIT work requires a strong, well-managed, disciplined Purchasing Department. And, with the added emphasis on quality, the Purchasing function becomes an even more important link in the production chain. This will create not only excellent quality in the products, but it will also increase worker motivation and satisfaction. The concept of NUMMI uses just-in-time production methods that makes quality assurance the responsibility of each work station.

Every job performed within the factory is constantly screened to insure top quality. The application of Kaizen, or continuous improvement, allows for input from all aspects of the factory as products are produced to keep the quality high. There is a chance for everyone to offer input into how the factory is run. It is believed that teams encourage participative decision making. Each team has a leader, and four teams make a group. The group leader then serves with other group leaders as the first layer of management in the factory. Toyota leadership stresses that the company is not the property of management but of all workers together.

They illustrate this point the best through their no-layoff policy. NUMMI has made an agreement with the unions that they will do whatever it takes to not layoff workers. All workers get the same pay except for team leaders, who get sixty cents more, and there is no seniority, performance or merit-based bonuses. This eliminates any sense of competition among the workers.

The factory itself is designed so that the workers are constantly learning and upgrading their skills. They are not treated like trained animals. The system also encourages worker suggestions, and in more than eighty percent of the suggestions were put into action. NUMMI has broken many of the stereotypes that suggest that Taylorism only works because people are forced into and not because they are intelligent enough to except or like it.

The NUMMI system taps into a workers 1 desire for excellence, 2 mature sense of realism, 3 positive response to respect and trust. Also absenteeism dropped from approximately twenty-five percent to between three and four percent. If managers want workers to trust them, we need to be in making the decision. Tommy Marshall, Class of Corporations in the service industries covet one thing more than anything else.

They want intimate knowledge about what makes their customers happy and why. Flanagan and Fredericks give the service corporations a method to experience their desires in the article Improving Company Performance through Customer Satisfaction Measurement and Management.

Unless you just returned from a long vacation in Siberia you know that the Total Quality Management revolution is happening in America. An essential element of TQM involves knowing what your customers want and how to give it to them. A commitment to TQM coupled with successful implementation can give a company greater market penetration, sales performance, customer retention, and future market prospects. Flanagan and Fredericks remind the TQM crazed manager that these outcomes are connected to four fundamental issues.

Who are your customers and what do they really need and want? In comparison with the competition, how well is your organization catering to customer requirements? Where should you focus your improvement efforts? This measurement is something very different from complaint measurements that simply let angry customers vent to management in a reactionary style. The customer satisfaction measurement is a proactive outreach to the total market of customers. This measurement provides genuine interaction with the customer to discover what she thinks of the company today and what she needs from the company tomorrow.

Flanagan and Fredericks help define a method of customer discovery by outlining six phases that form an effective customer satisfaction and management process. The first phase begins with objective setting. This means that the corporation asks itself the question how will we use the information gathered from our customers strategically and tactically? The objective of this process must be something that the company can attain and act on.

Discovery is the process of acquiring information from customers. This process must be well planned and executed. Many companies forget that they speak a different language from their customers. Useful information about customers also resides in the company itself. Employees who deal with customers understand customer habits and desires better than anyone else in the company. These tactics coupled with surveys and interviews should help the company make useful discoveries.

The critical needs assessment will help the company to decide what to do with all the information gathered. The company must keep in mind what it really wants to know. Look at all the information and try to unveil those factors that effect customer satisfaction. Once the key factors are recognized the company can get to the action phase. Create an action plan that will give the customer exactly what she has told you she wants today and tomorrow. The exceptional companies will pay close attention to the final two phases of product, service, and organizational improvement coupled with ongoing measurement.

The company must commit itself to working as a team across all levels if the action plan is expected to take effect. Flanagan and Fredericks call this the climate of shared commitment. The climate committed to action and continuous monitoring of quality will move the company forward to meet the changing needs and expectations of the customer. This effort will satisfy the customer and the resulting positive impact on the bottom line will satisfy the company.

Making the Numbers Count: The Accountant as Change Agent on the World-Class Team - CRC Press Book

They contend that logistics, if tailored correctly to fit the needs of the company and its customers, could become the next "governing element of strategy as an inventive way of creating value for customers, an immediate source of savings, an important discipline on marketing, and a critical extension of production flexibility. Once companies understand this basic principle, they will be able to tailor their logistics systems to serve their customers' needs better.

As result, the companies will become more profitable. Central to the argument for better management of logistics is the creation of value, or simply profit. Logistics has clearly become a critical issue in product strategy today. The most difficult challenge, however, in strategically managing logistics is the development of "target segments of customers that can be served profitably by distinct, rationalized pipelines.

Thus, real opportunities exist for added value and greater profit as logistics are generally undermanaged. The authors further contend that the best logistics strategy is to build distinct approaches to different group of customers. They note that "the goal of logistics strategy, then, is to organize companies to compete across the span of their markets without having to overcharge some customers or underserve others.

In addition, general management leadership must be exerted if the efforts for logistics improvement are to be successful. Companies could use "logistically distinct business methods" or "LDB methods" to achieve the desired goals. The most original LDB method is the posing of several basic questions usually eight about any product that, put together, make up a logistics decision menu.

The authors also note that LDB methods are useful not only for their analytical components, but also for their cross-functional approach. Tailored logistics can become the next powerful competitive advantage to those companies that realize the value they can add to their organizations just by simply using different logistics processes and pipelines to satisfy different customers' needs. But most importantly, at the same time companies are adding value to their customers, they are also benefiting their own bottom lines as they streamline operations and adopt a long-term, integrative, strategic vision to manage their operations.

Jennifer Hall, Class of Management accounting has evolved over time and is influenced by the continually changing environment in which it has developed. This type of accounting is focused on internal use by management rather than external reporting. At this time, management accounting has appeared to have matured and the current principles provide the basis for management accounting of the future.

All types of accounting share a common objective: The principal end products of management accounting are the forecast balance sheet and the forecast profit plan. However, management must also consider historical reporting and must use the same concepts for planning and reporting to provide comparable results. First, management needs segment information. The contribution of each segment to the overall company must be determined. These segments only contribute negatively or positively; only the firm earns a profit or loss.

Next, consider contribution versus net profit. By attributing profit and loss to segments, allocations are made on top of allocations which reduces the value of the resulting information for managerial planning and appraisal. The contribution approach provides "a simple objective statement of what has happened, requiring no assumptions and no cost allocations. Accounting for segments is done in two steps: Planning reports represent an alternative to allocation.

Assignment is based on responsibility. This sort of assignment shows the cause and effect relationship between decisions and actions and the cost and revenue results of these decisions. This method allows for direct comparison between actual and projected results that are conclusive. Direct costing is used as opposed to absorption costing. Direct costing insures that only those costs for which the product is responsible are the variable costs.

An important feature of external reports is that they have a similar format, and those who prepare these reports must follow specific rules when compiling them. However, there is a set of principles that should be followed to ensure that these reports provide meaningful information. To receive credit for ACCT , you must achieve a course composite grade of at least D 50 percent and a grade of at least 50 percent on the Final Examination. The following chart describes the credit weight associated with each course requirement.

The weighting of the composite grade is as follows:. The final examination for this course must be taken online with an AU approved exam invigilator at an approved invigilation centre. It is your responsibility to ensure your chosen invigilation centre can accommodate online exams. For a list of invigilators that can accommodate online exams, visit the Exam Invigilation Network.

To learn more about assignments and examinations, please refer to Athabasca University's online Calendar. Registration in this course includes an electronic textbook. For more information on electronic textbooks, please refer to our eText Initiative site. Managerial Accounting 2 nd Custom Ed.

A print version of the eText can sometimes be purchased from the publisher through a direct-to-student link provided on the course website; you can also acquire the textbook on your own if you wish. Full information for the Challenge for Credit can be found in the Undergraduate Calendar. To receive credit for the ACCT challenge registration, you must achieve a grade of at least D 50 percent on the examination.

Athabasca University reserves the right to amend course outlines occasionally and without notice. Courses offered by other delivery methods may vary from their individualized-study counterparts. Questions Open, Flexible, and Everywhere. View previous syllabus Delivery Mode: Individualized study online with eTextbook Credits: