A successful just-in-time system requires a change in manufacturing processes to accommodate this new inventory philosophy. What is involved is process management, not merely inventory management. The fundamental objective of JIT is to produce and deliver what is needed, when it is needed, at all stages of the production process—just in time to be fabricate, sub assembled, assembled, and shipped to the customer. Although in practice there are no such plants, JIT is an ideal and therefore a worthy goal. The benefits are low inventory, high manufacturing cycle rates, high output per employee, minimum floor space requirements, minimum indirect labor, and perfect in-process control. An associated requirement of a successful JIT operation is the pursuit of perfect quality in order to reduce, to an absolute minimum, delays caused by defective product units.
Non manufacturing activities of manufacturing firms wholesale and retails business banks and other financial enterprises insurance companies transpiration companies railroad airlines shipping companies bus companies school colleges and universities hospitals governmental units or local states or federal level churches and wale fare organization all should employ cost accounting in order to operate efficiently.
The cost department must not only record but also analyze all cost of manufacturing marketing administration for use by management in planning and control. It must in addition issue significant control reports other decision making data executive superintendent and department heads who assists in controlling and improving costs and operations.
In addition to invoices and documents supporting transaction of materials purchased consumed or transferred between department the account requires reports of time studies record of worker actual time bills of material and lists of operating and planning schedules. Capacity studies machine tools requirement and statistics regarding floor space machine capacities and power rating or power consumption constitute additional source data required. The accountant’s dependence upon information furnished by outsider necessitates source data are accurate reliable and available at the proper time.
Likewise the schedule producing and inspecting of jobs and products by manufacturing department are measured for efficiency in terms of the cost incurred.
The personal department interview screen and select employees, of various job classifications. It keeps workers personnel records and is interested in keeping efficient and satisfied employees. The wage rates and the methods of remuneration agreed upon with the employee from basis from the computation of the payroll.
The ever increasing use of standard cost provides a necessary measure of what cost should be. These standard cost permit an early preparation and presentation of short-run cost reports to operating management and summary statement to executive and middle management highlighting deviations from the planed goals. Reports comparing actual results with planed or budget figures based on standard cost bring to management only information the regarding the profits already made but also those that should have been made. Standard cost should ideally be integrally part of the budget in its preparation was its use a control device.
The return on capital employed ratio has been illustrated in connection with the analysis of the financial statements. Break even analysis offer another method that permit management to judge the overall plan on a pragmatic and convenient basis. To calculate the break-even point it is first necessary to observe the behavior of cost as to their fixed or variable nature. For the present it suffices to say that direct materials and direct labor are fundamentally considered variable costs.
GOVERMENTAL AND PRIVATE ORGANIZATIONS INFLUENCING GENERAL AND COST ACCOUNTING PRINCIPLES AND PRACTICE
The internal reporting and assistance phase is by the nature the realm and prerogative of the company management team. Closely allied with the internal reports of the external reports basically the financially statement consisting of the balance sheet income sued to outsider have received greater attention and have been substantially influenced by many groups and organization in recent year.
In the public sector financially or external reporting has been influenced significantly by the Securities and exchange commission (SEC) the internal the cost accounting standards board (CASB) which is discussed in chapter 3. Further more federal state and local governments prescribe certain accounting related regulation the must be observed that often embodied and the accounting system.
In the private sector professional organization include the American institute of certified public accountants (AICPA)which sponsored the formation of the financial accounting standards board (FASB); the national association of accountant (NAA) the American accounting association and the financial executive institute (FEI) research and pronouncement by these groups contribute to the development improvement and revision of both financial and cost accounting theory and practice.
It is not easy to define or explain the term cost leaving no doubt concerning its meaning. The committee on cost concept and standards of the American accounting association Wrote: “cost is a forgoing measured in monitory terms incurred or potentially to be incurred to achieve a specific objective “In” A Tentative set of board accounting principles from business enterprises cost is defined as an exchange price a forgoing a sacrifice made to secure benefit.
The collection of presentation and analysis of cost data should serve the following essential or user aims:
1. Planning profit by means of
Controlling cost via responsibility accounting.
Measuring annual or periodic profit including inventory costing.
Assisting in establishing selling prices and pricing policy.
Furnishing relevant cost data for analytical process for decision making.
Budget materials cost of quantity and labor costs and predetermined quantities of time required to manufacture each product are basic of these cost elements. These cost pull all factory of overhead and no manufacturing cost that fluctuate with activity must be determined first in order to establish the profit base for the budget sales. Some operating cost very directly in relationship to volume other costs and expense items either are wholly or partially fixed in character. The final budget should represent a conservative operating forecast including all the costs.
Fixing responsibility for the control cost of requires the establishment of definite lines authority. The organization chart present the organization structure the following these lines authority allow the assignment cost control responsibility to specific individuals. These individual should also have a had a hand in determine the planed or budget cost under their control. Not only cost but also sales revenue and profits are made the responsibility the certain managers. Cost and revenue responsibility becomes profit responsibility.
The longer the period the greater the accuracy of the manufacturing process. A company financial statements reflect the result of separating the cost applicable to units sold from the cost applicable to the units inventories. The separation procedure has always been a distinctive feature of cost accounting. The cost reported thereby are historical or past cost short-run interim or periodic detail reports are especially useful for purposes internal control and for the solution of particular managerial problems.
Variable manufacturing cost are assigned first to the unit manufacture and the matched with units sold variable manufacturing costs typically are matched with the initially with the unit sold. Fixed capacity cost are required an arbitrary location to the unit and consequently lead to the possibility of three alternative matching processes.
To match fixed capacity cost assigned to each period in total with revenue in that period (direct costing).
To match manufacturing fixed (capacity)costs on a product unit bases
And to match all over the fixed cost in total each period (absorption costing the generally accepted method).
To match all fixed capacity costs manufacturing as well as no manufacturing on a long-run sales unit basis.
Cost classification are needed for the development of the cost data that are useful to management with regard to the five purposes or aims described on pages 40-43. therefore cost are classified:
By the nature of the item (a natural classification).
With respect to the accounting period to which they apply.
By their tendency to vary with volume or activity.
By their relation to the product.
By their relation to manufacture departments.
According to their nature as common and/or joint costs.
For planning and control.
For analytical process.
The process of classifying cost and expense can begin with total cost which may be considered as all costs or deductions from sales revenue before income tax. In a manufacturing concern total operating cost in divided into (1) manufacturing cost and (2) commercial expenses.
Manufacturing cost often name production cost or factory cost is the head during the accounting period the part of manufacturing past represent work completed is transferred to finished goods while incomplete works remain in work in process.
Expenditure can be divided in to two broad classes: (1) capital expenditure and (2) revenue expenditure. A capital expenditure is intended to benefit future periods is classified as an asset; a revenue expenditure benefit the current period as is termed is expense. An expenditure classified originally as assets will ultimately flow into the expense stream when the assets is either consumed or charged off.