Essay about Lean Versus Traditional Production and Company’s Cost

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How lean versus traditional production might affect a management accountant trying to calculate a company’s costs. How would the information a management accountant would use to determine company costs change depending on type of production?

Gaurav Agnihotri
BU510
Module #2
March 8, 2013

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TABLE OF CONTENTS CHAPTERS | | I. | Abstract…………………………………………………… | 3 | II. | Introduction……………………………………………… | 4 | III. | Company cost in traditional production system …………. | 5 | IV. | Company cost in lean production system ………………… | 7 | V. | Conclusion………………………………………………… | 8 | REFERENCES………………………………………………………………… | 9 |

Abstract
In this essay we will be looking closely on methods to calculate company cost
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In Traditional production system the total manufacturing overhead cost is usually divided by direct labor hours. This could work if company produces similar products that do not vary in process and indirect cost is a small percentage of direct cost.
As manufacturing became more sophisticated the manufacturing overhead costs has usually increase while the direct labor hours or production machine hours have decreased. Hence, the direct labor or machine hours are unlikely to be the root cause of the manufacturing overhead. (Kaplan, 1984) believed that there were some faults in allocating manufacturing overheard cost. (Cooper & Kaplan, 1988) came up with activity based costing (ABC). This was new methodology. It was based on activities or processes. This methodology is more aligned towards lean manufacturing system.

Company’s cost in lean production system
Lean production is a philosophy of manufacturing without waste (Braun, Tietz, & Harrison, 2010) . It is “pull” system. The goal of a lean production system is to eliminate the waste of time and money that accompanies large inventories. Lean companies believe in “Just-in-time” (JIT) philosophy. JIT inventory focuses on purchasing raw materials just in time for production and then completes finished goods just in time for delivery to customers. Companies are able to eliminate the waste of storing and un-storing raw material and finished goods. Lean

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