|Using Accounting for
Quality and Cost Management
|Managers need good
accounting information to be competitive in the new production
- In the new production environment, managers are concerned
with staying competitive by
Accounting information can help managers to assess the
costs of quality and help them to find ways to cut costs.
- improving quality and
- reducing costs.
|Methods of improving quality:
- Three methods managers use to identify
quality problems are
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
- control charts,
- Pareto diagrams, and
- cause and
Managers can use benchmarking to focus attention on
how well one is doing against levels of performance that may be found
either inside or outside of the organization.
- quality control,
- delivery performance,
- materials waste, and
The balanced scorecard is
a set of performance targets and results that show an organization’s
performance in meeting its objectives relating to stakeholders.
Purchasing and Production:
- Can reduce costs and improve
- 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.
and contrasting accounting in just-in-time settings with accounting in
- 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
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.
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.
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.
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