Using Accounting for
Quality and Cost Management
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Managers need good
accounting information to be competitive in the new production
environment:
- In the new production environment, managers are concerned
with staying competitive by
- improving quality and
- reducing costs.
- Accounting information can help managers to assess the
costs of quality and help them to find ways to cut costs.
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Methods of improving quality:
- Three methods managers use to identify
quality problems are
- control charts,
- Pareto diagrams, and
- cause and
effect analyses.
- Knowing the four costs of quality–prevention,
appraisal, internal failure, and external failure–helps managers
minimize the cost of quality while providing high quality products to
customers.
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Developing quality-based
performance measures:
- Four such measures are:
- quality control,
- delivery performance,
- materials waste, and
- machine
downtime.
- Managers can use benchmarking to focus attention on
measuring
how well one is doing against levels of performance that may be found
either inside or outside of the organization.
- The balanced scorecard is
a set of performance targets and results that show an organization’s
performance in meeting its objectives relating to stakeholders.
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Just-in-time
Purchasing and Production:
- Can reduce costs and improve
quality.
- JIT substantially reduces or eliminates the need for
inventories and improves quality by eliminating buffer stocks in which
quality problems can be hidden.
- Using JIT, products must be produced
properly the first time.
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Comparing
and contrasting accounting in just-in-time settings with accounting in
traditional settings:
- Just-in-time accounting procedures normally debit all costs
directly to Cost of Goods Sold and bypass the usual inventory accounts.
- When it is necessary to report inventories in the financial
statements, the inventory amounts are “backed out” of the Cost of Goods
Sold account.
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Four
steps in Activity-Based Costing:
- Identify the activities that consume resources.
- Identify the cost driver(s) associated with each activity.
- Compute a cost rate per cost driver unit.
- Assign costs to products by multiplying the cost driver
rate times the volume of cost driver units consumed by the product.
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Advantages
and Disadvantages of Activity-Based Costing:
- Activity-based costing first assigns costs to activities,
then to the products based on each product’s use of activities.
- Activity-based costing is based on the premise: Products
consume activities; activities consume resources.
- Companies benefit from activity-based costing because
managers have more detailed information about the cost of activities
and better product cost information.
- Disadvantages include the cost and difficulty of
understanding more complex accounting methods.
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Comparing
product costs using activity-based costing with product costs using
traditional costing methods:
- In many companies, activity-based costing has revealed that
low-volume, specialized products have been more costly than managers
had realized when those products were costed using traditional methods.
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Strategic
and Behavioral Advantages of Activity-Based Management:
- By focusing attention on activities that cause costs,
activity-based management helps managers eliminate activities that
consume resources, thereby helping companies become more efficient and
competitive.
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