1.0 Introduction
Armco Inc. is a steel manufacturer that used to be the sixth largest in its industry in US (in 1990). The Kansas City Works within its Midwestern Steel Division was hit by the decline in the business in the US steel industry despite its good performance in the past. Consequently, it downsized and incurred significant losses in most of the 1980s. This entity produces two primary products including grinding media and carbon wire rod, one being recognized in the industry for its durability while the later being non profitable and only covering some of its fixed costs through volume.
2.0 What’s wrong with the old system?
(a) Inconsistency with organization’s strategy
The Objective of Armco Inc. is maximizing profits and
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These costs were shown as “S-Order” costs on the Operating Statistics Report.
The old system wasn’t working. People were relying on something that was not adequate.
The cost part of old performance measurement system was built for accountants. It was designed to produce financial statements, operating reports, and produce cost reports. One system can’t do all these things well.
Finance department spending 60% of their time in accounting on the non-value-added chores of inventory valuation for financial reporting purposes.
(d) Unfair performance evaluation
The Operating reports include those costs that are not controllable by the individual operating manager. They would be distorted by volume changes. This means that production managers are cost center managers, held accountable for all costs incurred in or allocated to their respective areas so. It would be difficult to evaluate manager’s performance when the numbers were distorted by uncontrollable factors.
Managerial performance report, also known as control report is used to make comparison of actual performance with some standard such as a budget. It forcuses on how well the manager performed during the period. It differes from economic performance report because
This report will provide insight on what your management team should do concerning production costs. We will examine 2 different scenarios and provide our decision as to which makes most sense. In the first scenario, the total fixed cost of the production is 1,000,000. In the second
Finally, the difficulty in quantifying non-financial performance also contributes to the complexity of performance measurement. The innovative approach Viet Nam developed to cut distribution costs also benefited Indonesia and Philippines. But it is not straightforward to incorporate the benefit of such innovation into performance measurement.
Saylor manufactures products X and Y, applying overhead on the basis of labor hours. X,
Managing performance means when an employee will be have targets and goals they have been given to see how they are progressing and what the final result is, all this will be monitored. There are 7 seven ways of monitoring their performance:
Determine whether the responsibility reports needed to track performance should be created by department, function, or manager, using a costing method of your choice. Based on the costing method you selected, determine the type of data needed to track and evaluate performance to control costs such as cost per unit, cost per hour, etc. Be specific with your examples.
For instance, the technical advances rendered these the previous measures less effective, since they concentrated on item costs, while TOC focussed on the working environment, dedicated expenditure, and the limitations associated with capacity, which in turn leads to the bottlenecks. Further, in contrast with the past measures, operational expense takes account of manufacturing outflows, wages, besides the administrative costs. It has also been established from the definition of throughput that revenue is earned from the sale of products, whereas the conventional definition of productivity simply revolves around amount produced per unit of time, which in essence does not generate profits. Therefore, there was an agreement that the measures proposed by Jonah, provide a more factual product cost and it generates more revenue, thus, management will be in a better position to
Until 2009, Nucor operated in an industry which experienced significant output declines during recent decades. The U.S. steel industry was operating at capacity levels of less than 50 percent and had lost more than 50,000 jobs since 2000. Growth of the Chinese steel industry posed a serious threat for domestic steel producers (Scott, 2009). Since that time, however, the U.S. steel industry has picked up momentum in response to soaring demand by the automobile and construction industries. Steel is the preferred material by the construction industry because of its performance, strength, reliability and versatility. In addition to construction, the automobile, energy and container industries have all been responsible for increasing steel consumption (Market Research.com, 2011).
Managerial Accounting reports are primarily used by supervisors, line managers, process owners, as well as executives, to gain a better understanding of the current financial and operational health of the organization. (Internal)
From the aspect of cost center[1], tracking information of cost expenses would facilitate management to figure out the productivity by an unbiased measurement. In operations, company units such as the human resources department or marketing department, except sales department, are not engaging in market share or generating revenues. In contrast, these departments contribute their capabilities for internal supports and help sales department turn profits to the company. Those efforts are a part of product costs and also are a norm for performance evaluation.
Wriston Manufacturing Corporation (WMC) is faced with a Detroit plant that is no longer viable because of underinvestment, labour issues, and product-process mismatch. This has lead to low sales figures, low return, and high burden rates (as calculated by the company). The issues at the Detroit plant will be reviewed and options will be presented. A recommendation to address the Detroit plant will be be made based on this review.
Operating expenses includes production costs, such as direct labor, indirect labor, inventory carrying costs, equipment depreciation, materials and supplies used in production, and administrative cost. This was not happening at Alex’s plant. His inventories had increased over the past six or seven months and operational expense also increased. This meant he had a lot of work to do to keep his plant open and he was now aware of it.
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 fact, many of these PMS tools and technological innovations were transformed based on those traditional ones to better meet the organisation needs in the contemporary era. More than 30 popular cost and management accounting techniques have been introduced since 1950 (Refer to Table1). Abdel and Luther (2006) described that the most notable innovative management accounting techniques are Activity based costing (ABC), strategic management accounting and the BSC. Among all the modern management accounting tools and techniques, this paper focuses on BSC as a performance measurement system and will be discussed in the next section.
Managers should ensure that selected performance measurement system fits the unique requirements and business strategy of the firm. In general, primary economic activity of the company and its performance focus should dictate the selection of performance measurement model.