Using Accounting for Quality and Cost Management
This chapter explains why managers need good accounting information to compete in the modern production environment and identifies ways to improve quality, including performance measures that support it and the balanced scorecard. It covers how just-in-time purchasing and production reduce costs and improve quality, and defines activity-based costing and its four steps.
Quality, performance measures, and the balanced scorecard
Good accounting information helps managers compete by revealing where quality is falling short, since defective products damage customer loyalty and ultimately company performance, and by developing performance measures, such as quality control, delivery performance, and materials waste, that make quality tangible and trackable. The balanced scorecard extends this further, helping organizations recognize and manage responsibilities that can pull in opposing directions, such as satisfying customers today while investing for the company’s longer-term financial health.
Just-in-time purchasing and production
Just-in-time purchasing and production aim to reduce costs and improve quality by receiving materials and producing goods only as they are needed, cutting the inventory a company must hold and the waste and errors that large inventories can hide. Accounting in a just-in-time setting differs from accounting in a traditional setting, often combining accounts that were previously kept separate and tracking costs by the product line or cell where work actually happens rather than by individual department.
Activity-based costing and management
Activity-based costing assigns overhead to products based on the specific activities that drive its cost, rather than spreading it using a single volume-based rate, through four steps: identifying activities, assigning costs to activity cost pools, computing a rate for each activity, and applying costs to products according to their use of each activity. Product costs computed this way often differ substantially from those under traditional costing, and activity-based management extends the approach to focus attention on which activities genuinely add value.