Essay on Truth and Consquence

1335 Words Jul 26th, 2012 6 Pages
Kenco Engineering Corporation
Strategy-Driven Costing & Lean Management
Kenco Engineering Corporation
Strategy-Driven Costing & Lean Management

Question 1) Generally Accepted Accounting Principles require that product costs include all manufacturing costs and only manufacturing costs. Activity-based costing usually does not include all manufacturing costs and will often include nonmanufacturing costs. Therefore, ABC is not currently acceptable under GAAP. Kenco’s costing system is preferable under GAAP because it includes all manufacturing costs, and only manufacturing costs. Kenco currently uses one cost driver: a product’s consumption of TCing machine time and allocates manufacturing costs based on the use of that
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Standard costing does not identify key cost drivers, specifically for overhead costs. Therefore, the constant change and development of organizations is not examined.

Question 4)
Kenco was able to identify product quality, on-time delivery, and cost as their three key success factors. They have since created reporting systems that focus on these three factors and have adopted a continuous improvement manufacturing strategy to improve quality, increase on-time deliveries, and reduce costs as much as possible. They also have adopted manufacturing techniques that support these factors as well.

To reduce costs, they have developed a reporting system for gross profit margin that helps detect the unprofitable jobs by evaluating them based on profitability and not just cost. The least profitable jobs will be investigated to determine if they are able to develop a lower cost design or can work with their customer to reduce the cost of production in other ways. Kenco’s reporting systems use profitability not just costs to evaluate jobs. Their approach “uniquely merges market value and costs to identify activities to be investigated for improvement.” By identifying these areas, Kenco has a greater chance of improving their strategic value to the customer by improving the costs associated with these lower margin jobs. Another way they have reduced cost is purchasing materials annually at negotiable

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