1. Advanced Manufacturing Technology, JIT, Target Costing, and Product Life-cycle Costing

2. Advanced Manufacturing Technology
Management accounting should support the manufacturing goals of an organization. Therefore, it’s important for management accountants to understand the manufacturing systems, production management strategies, and advanced manufacturing technology (AMT) used in their organizations.
Focus study: manufacturing systems and strategies and consider the implications for the design and use of management accounting systems (MAS).

3. Advanced Manufacturing Technology
Excellence in manufacturing can provide a competitive weapon in highly competitive markets. In order to compete effectively, companies must be capable of manufacturing innovative products of high quality at a low cost and provide first-class customer service.
World-class have responded and invested in AMT such as computer-aided design (CAD), computer-aided manufacturing (CAM), robotics, computer-aided engineering (CAE), computerised numerical control machines (CNC), enterprise resource planning (ERP), systems and flexible manufacturing systems (FMS), etc.

4. DRURY (1992)
CAD – replaces the traditional draftsman or engineer’s table with computer terminal.
CAM – consist of robotics, numerically controlled machines and computer numerically controlled machines.
CNC – encompasses a broad range of programmable machine tools.
FMS – combination of a computer numerically controlled machine and automated material-handling equipment.
CIM – series of automated subsystems within the factory.
JONSSON (2000)
AMT helps alter the rules of competition in industries, in effect creating an environtment in which the firm has a competitive edge based on its use of AMTs.
As result of AMT, there’s less downtime required to shift between families of products or component, which is turn can result in greater productivity.

5. Production Management Strategies
The operations and production management literature suggests a number of production management strategies. These are:
Materials requirement and manufacturing resources planning systems
Optimized production technology (OPT)
Just-in-time (JIT) manufacturing systems.

6. Production Management Strategies
An MRP systems determines:
the quantity and timing of finished goods demanded,
the requirements for raw materials components and
subassemblies prior to each stage of production
To operate an MRP system the organization must have:
a master production schedule
a bills of material file
an inventory file
a master parts file

7. The Just-in-Time Approach
The aims of JIT are to produce the required items, at the required quality and in the required quantities, at the precise time they are required.

8. The Just-in-Time Approach
JIT seeks to achieve the following primary goal:
Elimination of non-value added activities
Zero inventory
Zero defects
Batch sizes of one
Zero breakdowns
A 100 per cent on-time delivery services
JIT production is an evolutionary process, which aims to produce the required items, at the required quality and in the required quantities, at the precise time they are required.

9. Traditional Manufacturing
JIT vs Traditional Manufacturing
Traditional Manufacturing
JIT Manufacturing
Throughput time
Processing time + inspection time + conveyance + waiting
Processing time only
Optimum lot size
More than one
One
Set-up time and costs
Long set-up time and therefore high costs
Zero set-up time and thereby no set-up costs
The need for holding inventory
A back-up exists to keep production flowing
Zero inventory
Quality management
Provision for waste, scrap, rework, etc.
Zero-defects, quality environment
Number of suppliers and relationship
Large number of suppliers and short-run relationships
Fewer suppliers and long-term relationships
Factory layout
More space is needed
Reduce the need for space
Management accounting systems
Greater emphasis on costing
Greater emphasis on cost-management
Performance evaluation systems
Greater emphasis on financial indicators
Greater emphasis on non-financial indicators

10. The Implications of Productions Managements Strategies for The Design and Use of Cost/Management Accounting Systems
MRP and cost accounting systems. MRP provides the basis for production scheduling and raw materials purchasing. (Drury, 1992)
OPT and cost accounting systems. Overhead should be allocated to products based on throughput time. Management can signal to operating managers that reducing throughput time can reduce product costs. (Drury, 1992)
JIT and the cost accounting system. Installing a JIT system affects:
The traceability of costs;
Enhances product-costing accuracy;
Diminishes the need for allocation of service-center costs;
Changes the behavior and relative importance of direct labor costs;
Impacts job-order and process costing systems (Hansen and Mowen, 1997)

11. The Implications of Productions Managements Strategies for The Design and Use of Cost/Management Accounting Systems
In a JIT purchasing environment, the warehouse is no longer needed and thus materials handling costs can be reduced.
JIT manufacturing, by reducing indirect costs and increasing direct costs, diminishes the need for detailed allocation of costs to various activities.
In JIT environment, many services are decentralized.

12. Relation Between JIT Production and Automation
Implementation of JIT production system can help managers eliminate waste by compressing time and space and thereby firms are capable of reducing costs of production significantly.
Blackburn (1988) suggests that a successful JIT implementation gives firms the kind of flexible, balanced, yet simple production process that makes automation easier to implement.

13. Relation Between JIT Production and Activity-Based Costing
Some argues that JIT is a substitute for short-run cost accounting data and that the physicals are more important. (McNair, Mosconi and Morris, 1989; Cooper and Kaplan, 1991; Cobb, 1993)
Following these arguments one would expect that firms with a JIT production system are more likely to place emphasis on an ABC system (Hoque, 2000)

14. Relation Between Activity-Based Costing and Automation
The changed manufacturing environment requires a firm to adapt costing systems to its particular circumstances (Gosse, 1993; Johnson, 1990; Cooper, 1996; Brinker, 1995)
With automation the product is released faster, the manufacturing process is faster and the whole life of the product is shorter.
Hansen and Mowen (1997) suggest that ABC system provides more than just more accurate product-cost information; it also provides information about the cost and performance of activities and resources.

15. (K.Crow, DRM Associates, 1999)
Target Costing
Target costing is based on three premises:
Orientating products to customer affordability,
Treating product cost as an independent variable during the definition of a product’s requirements,
And proactively working to achieve target cost during product and process development
(K.Crow, DRM Associates, 1999)
Is a cost estimation approach which is widely used by Japanese companies. It consists of setting a desired market price for a new product.
It’s also known as a cost reduction tool. The target costs are compared with current estimates, which are almost always higher.

16. Product Life-cycling Costing
The process of tracking and determining the costs of a product through its entire life-cycle, from entry to obsolescence, is termed product-life costing.

17. Traditional Cost Management Approach
Product Requirements
Product Design
Process Design and Cost Estimates
Make/Buy Analysis
Supplier Cost Estimates
Cost too high?
Production
Source:
Ken Crow, DRM Association (1999)
Periodic Cost Reduction

18. Target Cost Concept Product Requirements and Market Analysis
Target Priceless Profit
Balance Target Cost and Requirements
Make/Buy Analysis
Explore Product and Process Design Alternatives and Design Products and Process
Cost Projections
Supplier Target Costing
DRMA and Value Analysis
Production
Continuous Cost Reduction
Source:
Ken Crow, DRM Association (1999)

19. Summary
The adoption of JIT production systems gives managers a much better understanding of a product’s full costs, leading to reductions in material losses and the potential for greater improvement in overall factory productivity.

20. Thank You