Live Webinar: Don't Let Finance Run the Factory When: Tuesday Jun 22, 2021 - 01:00 PM Duration: 60 Minutes.
While generally accepted accounting procedures must be used to prepare financial statements and tax returns, traditional cost accounting is indeed totally unsuited to managerial decision making and can drive dysfunctional behavior such as generation of unsaleable inventory to "absorb overhead." Cost accounting treats inventory as an asset, which it might indeed be on paper, but it ties up money, increases cycle times, and gives quality problems a place to hide. This presentation will show how to use relevant metrics for effective decision processes.
Areas Covered in the Session:
Traditional cost accounting methods are mandatory for tax and financial reporting, but their application to managerial decision processes can make them more destructive to organizational performance than many forms of poor quality.
When Cheap is Costly
Inventory is Not an Asset (even if must be treated by one by the accounting system). It ties up capital, increases cycle time, and gives defects a place to hide.
Variable costs often aren't. Labor is, unless overtime is being paid, a fixed cost regardless of what the cost accounting system calls it. Treatment of labor (and, even worse, overhead costs) as variable costs could easily result in the decision to turn down marginally profitable work—that is, the revenue from each item sold exceeds the cost of making it—because it would generate a loss on paper.