Cost Management Techniques And Accounting Principles

Assuming that the company’s goal is to maximize profits, the current cost system is not an appropriate tool for strategic planning. The ambiguity of the overhead costs per product makes it difficult to accurately analyze the cause and effect relationships of changes and/or improvements to specific product line.

Machine hours, direct labor hours, and direct labor costs can all be used to allocate manufacturing overhead.

Boer, G., & Jeter, D. (1993). What's new about modern manufacturing? empirical evidence on manufacturing cost changes. Journal of Management Accounting Research, 5, 61. Retrieved from http://search.proquest.com/docview/210171196?accountid=32521

Traditional Cost method is defined as “The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the products manufactured. The traditional method (also known as the conventional method) assigns or allocates the factory 's indirect costs to the items manufactured on the basis of volume such as the number of units produced, the direct labor hours, or the production machine hours. We will use machine hours in our discussion. By using only machine hours to allocate the manufacturing overhead to products, it is implying that the machine hours are the underlying cause of the factory overhead. Traditionally, that may have been reasonable or at least sufficient for the company 's external financial statements. However, in recent decades the manufacturing overhead has been driven or caused by many other factors. For example, some customers are likely to demand additional manufacturing operations for their diverse products. Other customers simply want great quantities of uniform products. If a manufacturer wants to know the true cost to produce specific products for specific customers, the traditional method of cost accounting is inadequate.” AccountingCoach. (n.d.).

-Maintained 100% on-hand accountability of 6,668 principal end item held on the MAL and 18 consolidated memorandum receipts valued in excess of $68 million.

Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance (Cost Accounting, n.d.).

1. Use the Overhead Cost Activity Analysis in Exhibit 5 and other data on manufacturing

Therefore, there is no doubt that it is significant to allocate overhead cost accurately for every production. If the overhead is calculated incorrectly, the selling price of the product will change. The company will not cover the cost and make a loss.

One of the main issues when it comes to implementing lean accounting is that it exposes many things throughout a business and with this reveal comes potential changes that may alter the way a business incorporates its manufacturing process. When a company implements lean accounting into the daily business activities, the business is setting themselves up for success to evaluate the way it does business and identify potential activities that they can reduce in an effort to eliminate unwanted expenses and maximize on profits. However, having this much information when it comes to every aspect of the business may turn out to actually be a downfall in the business as a whole because when a company implements lean accounting they may see some needed

This paper provides a critical analysis of several alternative cost systems to traditional cost accounting systems. It then evaluates these alternatives in terms of how they might support, or not, companies that adopt a lean philosophy. An example of nonfinancial performance indicators that support a lean philosophy is offered in Tables 1 and 2. This discussion in the article

The current method of apportioning production overheads based on direct labour hours can be described as a traditional approach to product costing. In a manufacturing company’s financial statements, each item produced must be allocated some of the production overheads to make the statements compliant. Sometimes the individual costs of these items can be calculated incorrectly based on overall production overhead and the system of allocating in place, however the overall financial statement can still be accurate. This traditional method of allocating the production

In addition, it wrongly allocated its indirect costs at volume bases. The use of process technology mentioned in the case led to an increase in factory overheads Since direct labor hours was not a cost driver of them, allocating its large proportion of fixed factory overheads and other indirect batch-level costs on the basis of DLHs in this cost system did not accurately measure how resources were being used. As a result, these inaccurate allocations would have significant costs to Elkay. Moreover, it disregarded its cost structure in which most costs were “fixed” that would not vary in the short run and should be allocated based on its practical capacity. By using the “actual sales volume” as the allocation base for allocating its large corporate overheads, this standard costing system in fact over-pricing its products for its actual productivity was lower than the practical capacity under the intense competition. As a consequence of all problem within the standard costing system, PPD urgently needed an accurate costing system.

This was imperative as only valuable information could encourage managers to make more accurate decisions. Management accounting techniques such as marginal costing and responsibility accounting were presented in this time to assist managers with decision making or create strategic business units. A significant increase in global competition complemented by rapid technological growth in the 1980s affected many aspects of the industrial sector. In this time, the management emphasis continued on cost reduction, however more process analysis was made conceivable by cost management technologies. Some techniques widely adopted by businesses in this time include Just in Time (JIT) and Activity-Based Costing (ABC). In the 1990s world-wide industry continued to face considerable uncertainty and unprecedented advances in manufacturing technologies, which further increased and emphasised the challenge of global competition (Abdel-Kader & Luther, 2008). Prevalent techniques introduced during this stage were Total Quality Management (TQM), Activity-Based Management (ABM), Benchmarking and Reengineering.

Under the new cost system, two broad sources of costs were identified: manufacturing and SM&A. All costs within these categories were reclassified as either volume driven or order driven. Hence, four cost pools were set up.

Erin should notify Smart Worx of the postponement as it is consistent with ethical principles of integrity and professional competence. As Erin is complying with these codes of ethics, she has nothing to lose or suffer as she followed the guidelines of the code and therefore cannot be