Cost Management Techniques And Accounting Principles

937 Words4 Pages
“Cost management techniques and accounting principles used in the 1950s and 1960s have not changed dramatically in their ability to help in managing the development and innovation in productivity and business philosophy.” (Northrup, 2004, p. 2) Ideally businesses running today use the same methodology which was used in the past 60 years however, management procedures over the past century has changed. If we were to look in the past, we would understand that most manufacturing industries began to slow down until the mid 1970’s. After then, the manufacturing businesses created new processes and procedures to build products and maintain/ increase productivity. However, the problem we do not typically understand is how to track these…show more content…
3) These standard costs were allocated for manufacturing overhead for determining the companies’ revenue and profit margins based off the final product and sales. These allocated cost were then measured by accounting, with primary focus on the utilization capacity of the manufacturing plant. The conventional quantities, for example labor utilization, selling price variance, production proficiencies, amongst other manufacturing identities procedures. These types of processes lead to a factory that produces large amounts of scrap, poor quality products, increased shipping costs, customer dissatisfaction, shortages, etc. These issues are common in factories however, can be avoided if Lean processes can be applied. Ideally this would incorporate understanding the necessary resources and unnecessary procedures. A typical problem within most factories includes the overhead which tend to be redundant if not paid close attention to. Another would be the absorption variance which indicates a significant amount of products with little to no customer demand. There is a study which explained in 2008 General Motors and Chrysler Corporation were impacted severely by the “overhead absorption” thought process. However, the manufacturing plant continued to build cars based of the “economic” demand quantities, ultimately spending large amounts of cash. This resulted in supplying hundred of thousands of
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