Cost Accounting Solved Problems

Cost Accounting Solved Problems-8
The quite valid goal is to the the biggest bang for the buck.However, cost accounting reduces the process of manufacturing to a few simple numbers to make decisions.

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As Daniel Defoe observed: “With this attitude, it is no surprise that merchants became wealthier than craftsmen.

Soon, merchants started what we would nowadays call a vertical integration: they included craftsmen in their supply chains through a .

Hence, the merchant had little knowledge of the manufacturing process.

He did not know and did not care about the details of the process, its efficiency, and the possibilities for improvement.

The more even your system works, the more profitable you will be.

However, it is difficult to measure these fluctuations, even more difficult to determine the impact of an improvement on fluctuations, and hence nearly impossible to calculate the monetary benefit of reducing fluctuations.Below is an incomplete list of important factors in manufacturing that are ill-covered in accounting.Speed: Everybody knows that speed gives you an advantage over the competition.Accounting is one of the cornerstones of the modern economy.Cost accounting in particular helps in decision making with the goal to maximize profit. Unfortunately, cost accounting usually does a really poor job of capturing the essence of manufacturing in general and lean manufacturing in particular.What is the quantitative advantage of having clean and well-maintained toilets on the shop floor rather than the biohazards I often see? But again, what is the monetary damage if a delivery is delayed, if a product breaks, if service is slow, or if your people are unfriendly? Even more difficult to determine is how improvement measures will actually influence the above.How much does it cost you to provide a better service, how will this influence customer satisfaction, and what is your benefit from this?Merchants contracted craftsmen for creation of products.They provided the craftsman with raw materials, and often also with the tools and even the workshop, and the craftsman labored for the merchant.Even if the numbers were correct (see Lies, Damned Lies, and KPI), it misses out on a lot of information.A lot of things cannot be reliably determined using accounting.


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