Managing Costs & Revenues Professor William F. O’Brien, MBA, CPA Spring 2011

MANAGING COSTS AND REVENUES Session 7 n Lean Production n Dairy Pak Case n Graham Case

MANAGING COSTS AND REVENUES MALP n Strategic Implications of Mgt. Acctg. Systems n Quality choices can be affected n Cost is fundamental n Provides information on timeliness of production

MANAGING COSTS AND REVENUES Determinants Management Accounting System Cost Structure Environment Production Methods Strategic Choices -Structural Elements -Work Processes

MANAGING COSTS AND REVENUES Types of Production Methods n Craft n Mass Production n Lean Production (Flexible Mfg. System)

MANAGING COSTS AND REVENUES Structure Differences n Mass n Inflexible single purpose n High set-up time n Low labor skill level n Lean n Multi-use equipment n Low set-up time n Skilled labor force

MANAGING COSTS AND REVENUES Work Process Differences n Mass n Supervisory control n Precise control over supplier n Standardized products n Independent, sequential prod. develop. n Lean n Empowered workers n Cooperative relationship w/suppliers n Customer focused organization n Concurrent, integrated design

MANAGING COSTS AND REVENUES Cost Structure n Mass n Driven by volume n Allocation of fixed costs n Lean n Driven by process or activity

MANAGING COSTS AND REVENUES Mgt. Acctg. System in Lean Production n Driver focused n Value chain focused n Limited need for inventory reporting n Indirect cost orientation n Information system is critical for success

MANAGING COSTS AND REVENUES Lean Prod--Attributes n Technical n Better decision relevance n Driver focused n External orientation n Cross functional & value chain focus n Better process understanding

MANAGING COSTS AND REVENUES MALP--Attributes, cont. n Behavioral n Team responsibility n Multiple motivation n Accountant as team player n Quality commitment n Global optimization n Risk of burnout

MANAGING COSTS AND REVENUES MALP--Attributes, cont. n Cultural n Team responsibility n Cooperation vs. competition n Focus on overall common good n Change in locus of power