1. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-1 Determinants Management Accounting System Cost Structure Environment Production Methods Strategic Choices -Structural Elements -Work Processes

2. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-2 Types of Production Methods n Craft n Mass Production n Lean Production (Flexible Mfg. System)

3. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-3 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

4. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-4 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

5. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-5 Cost Structure n Mass n Driven by volume n Allocation of fixed costs n Lean n Driven by process or activity

6. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-6 Mgt. Acctg. System in Lean Production n Driver focused n Value chain focused n Limited need for inventory reporting n Indirect cost orientation

7. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-7 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

8. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-8 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

9. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-9 MALP--Attributes, cont. n Cultural n Team responsibility n Cooperation vs. competition n Focus on overall common good n Change in locus of power

10. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-10 MALP n Strategic Implications of Mgt. Actg. Systems n Quality choices can be affected n Cost is fundamental n Provides information on timeliness of production

11. STRATEGIC COST MANAGEMENT - BA122B - Fall 2010 10-11 Accounting System Implications n Standard cost system does not work n Consider accumulating costs by value streams or activity groups n Expect to spend more money up front during the transition to lean operations n Use what information you already have