The document discusses several management accounting concepts and techniques including life cycle costing, quality costing, kaizen costing, throughput costing, and theory of constraints. It defines each concept, explains their purpose and use, provides examples, and in some cases discusses merits and limitations. Overall, the document serves as a reference on various costing methods and quality management techniques used in management accounting.
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The document discusses several management accounting concepts and techniques including life cycle costing, quality costing, kaizen costing, throughput costing, and theory of constraints. It defines each concept, explains their purpose and use, provides examples, and in some cases discusses merits and limitations. Overall, the document serves as a reference on various costing methods and quality management techniques used in management accounting.
The document discusses several management accounting concepts and techniques including life cycle costing, quality costing, kaizen costing, throughput costing, and theory of constraints. It defines each concept, explains their purpose and use, provides examples, and in some cases discusses merits and limitations. Overall, the document serves as a reference on various costing methods and quality management techniques used in management accounting.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
The document discusses several management accounting concepts and techniques including life cycle costing, quality costing, kaizen costing, throughput costing, and theory of constraints. It defines each concept, explains their purpose and use, provides examples, and in some cases discusses merits and limitations. Overall, the document serves as a reference on various costing methods and quality management techniques used in management accounting.
Copyright:
Attribution Non-Commercial (BY-NC)
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Download as PPT, PDF, TXT or read online from Scribd
Download as ppt, pdf, or txt
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Chapter 21
Contemporary Issues In Management Accounting
Life Cycle Costing
The accumulation of costs for activities that occur over the entire life cycle of a product, from inception to abandonment, by the manufacturer and the customer are known as life cycle costing. Life cycle analysis provide a framework for managing the cost and performance of a product over the duration of its life. The life cycle commences with the initial identification of a consumer need and planning, evaluation, design, disposal etc. Management Accounting By Paresh Shah Oxford University Press
Life Cycle Cost Analysis
Life cycle cost analysis (LCCA) is a method to accumulate costs that occur over the entire life of the product. It takes into account all costs of acquiring, owning, and disposing of an asset. Some other commonly used measures are net savings (or net benefits), savings-to-investment ratio (or savings benefit-to-cost ratio), rate of return, and payback period. There are numerous costs associated with acquiring, operating, maintaining, and disposing of any asset. Management Accounting By Paresh Shah Oxford University Press
Quality Costing As organizations strive to increase their bottom line performance in the highly competitive environment, they tend to forget to integrate two important planning activities strategic and quality planning. Quality costing is used as a tool to measure the efficiency of the entity.
Management Accounting By Paresh Shah Oxford University Press
Quality As A Competitive Tool
The American Society for Quality Control defines quality as the total features and characteristics of a product or a service made or performed according to specifications to satisfy customers at the time of purchase and during the use. Two basic aspects of quality are Quality Of Design: how closely the product or services meet the customer needs and wants. Conformance quality: refers to the performance of a product or service relatively to its design and product performance. Management Accounting By Paresh Shah Oxford University Press
Categories Of Quality Costing
Simply stated, quality cost is the cost of poor product or service. Preventive cost category Appraisal cost category Internal failure cost category External failure cost category
Management Accounting By Paresh Shah Oxford University Press
Cost Of Quality Cost of quality refers to the costs incurred to prevent, or the costs arising as a result of producing a low-quality product. Cost of quality will generally cover the following: Cost of labour to fix the problem Cost of extra material used Cost of extra utilities Management Accounting By Paresh Shah Oxford University Press
Kaizen Costing Kaizen costing offers something new to all organizations, and tries to implement the strategies to handle difficult situations up with the increasing competition in the global market. It is a Japanese approach to management, pioneered and used by large corporations. Kaizen focuses on continuous improvement by successive small steps, coupled with occasional larger breakthrough innovations. Kai means change and Zen means good. Management Accounting By Paresh Shah Oxford University Press
Need For Kaizen Costing
It requires tracing out non value- adding activities in their manufacturing and supplying chain to offer the products and/or services at lower prices. The manufacturers or suppliers are facing challenges like to get better results at lower costs to enable price cuts and higher profit.
Management Accounting By Paresh Shah Oxford University Press
Kaizen Costing System
It is a cost reduction system to reduce final estimations to a level lower than standard costs. It continuously reviews existing production conditions in order to reduce costs. It emphasizes the reduction of waste in organizations systems and processes.
Management Accounting By Paresh Shah Oxford University Press
Empirical Case Study
Toyota Motor Co. Ltd
Management Accounting By Paresh Shah Oxford University Press
Transforming Kaizen In Practice
Continuous improvement can be ensured through the following activities: Customer focus Team working Problem solving through employees participation Communications
Management Accounting By Paresh Shah Oxford University Press
Throughput Costing Throughput costing is a system whereby only direct material cost is considered as variable and all other costs are treated as period cost. Managers view costs relating to workers, equipment, and occupancy as relatively fixed with respect to productive capacity during the period. Hence, it is also called as super variable costing. Throughput contribution is equal to sales minus direct material costs. Management Accounting By Paresh Shah Oxford University Press
Theory Of Constraints TOC suggest the managers to focus on how to effectively manage these constrains in improving the overall performance of their organization. The constraint usually consists of: managerial constraints, capacity constraint, market constraint, and Management Accounting By Paresh Shah Oxford University Press
Throughput Accounting Throughput is the rate at which the system generates money through sales Inventory is all the money that the system invests in purchasing things which it intends to sell Operational expense is all the money the system spends in order to turn inventory into throughput. Throughput = Revenue Purchased material cost Net Profit = Throughput Operating Expenses Management Accounting By Paresh Shah Oxford University Press
Merits Absorption costing can be manipulated If the company is following just-in-time approach, then there will be no closing stock and the operating income under absorption Once the break-even point is achieved, the company can make a decision on the throughput costing and variable costing method. Management Accounting By Paresh Shah Oxford University Press
Limitations Bifurcation of fixed cost and variable cost is very difficult Costs other than direct material costs are ignored Costing also depends on the methods of valuation of inventory
Management Accounting By Paresh Shah Oxford University Press
