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 Warren Reeve Duchac Financial and Managerial Accounting 13e  Warren Reeve Duchac Financial and Managerial Accounting 13e

Warren Reeve Duchac Financial and Managerial Accounting 13e - PowerPoint Presentation

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Warren Reeve Duchac Financial and Managerial Accounting 13e - PPT Presentation

Lean Principles Lean Accounting and Activity Analysis 27 C H A P T E R humaniStock360Getty Images Lean Principles The lean enterprise is a business that produces products or services with high quality low cost fast response and immediate availability ID: 775971

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Presentation Transcript

Slide1

Warren

Reeve

Duchac

Financial and Managerial Accounting 13e

Lean Principles, Lean Accounting, and Activity Analysis

27

C H A P T E R

human/iStock/360/Getty Images

Slide2

Lean Principles

The lean enterprise is a business that produces products or services with high quality, low cost, fast response, and immediate availability.Lean manufacturing, sometimes called just-in-time processing (JIT), accomplishes these objectives in a manufacturing setting.Both manufacturing and nonmanufacturing businesses use lean principles to accomplish theses service and cost objectives.

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©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide3

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Lean versus Traditional Manufacturing Principles

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide4

Reducing Inventory

Lean manufacturing views inventory as wasteful and unnecessary, and thus emphasizes reducing or eliminating inventory.Under traditional manufacturing, inventory often hides underlying production problems or problems caused by a shortage of trained employees, unreliable suppliers, or poor product quality.In contrast, lean manufacturing solves and removes production problems. In this way, raw materials, work in process, and finished goods inventories are reduced or eliminated.

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©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide5

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Reducing Lead Time(slide 1 of 2)

Lead time, sometimes called throughput time, measures the time interval between a product entering production (is started) and when it is completed (finished).That is, lead time measures how long it takes to manufacture a product.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide6

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Reducing Lead Time(slide 2 of 2)

The lead time can be classified as one of the following:Value-added lead time, which is the time spent in converting raw materials into a finished unit of productNon-value-added lead time, which is the time spent while the unit of product is waiting to enter the next production process or is moved from one process to anotherThe value-added ratio is computed as follows:

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Value-Added Ratio =

Value-Added Lead Time

Total Lead Time

Slide7

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Reducing Setup Time

A setup is the effort spent preparing an operation or process for production. A batch size is the amount of production in units of product that is produced after a setup. The total within-batch time is computed as follows:The value-added ratio is computed as follows:Lean manufacturing emphasizes decreasing setup times in order to reduce the batch size, whereas traditional manufacturing does not treat setup improvement as an important priority.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide8

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Emphasizing Product-Oriented Layout

Manufacturing processes can be organized around a product, it is called a product-oriented layout (or product cells). Alternatively, manufacturing processes can be organized around a process, which is called a process-oriented layout. Lean manufacturing normally organizes manufacturing around products rather than processes.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide9

Emphasizing Employee Involvement

Employee involvement is a management approach that grants employees the responsibility and authority to make decisions about operations.Employee involvement is often applied in lean manufacturing by organizing employees into product cells.Within each product cell, employees are organized as teams where the employees are cross-trained to perform any operation within the product cell.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide10

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Emphasizing Pull Manufacturing

In pull manufacturing (or make to order), products are manufactured only as they are needed by the customer. Products can be thought of being pulled through the manufacturing process.In contrast, the traditional approach to manufacturing is based on estimated customer demand. This principle is called push manufacturing (or make to stock).

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide11

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Emphasizing Zero Defects

Lean manufacturing attempts to eliminate poor quality. Six Sigma was developed by Motorola Corporation to improve product quality and manufacturing processes and consists of five steps:DefineMeasureAnalyzeImproveControl

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide12

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Emphasizing Supply Chain Management(slide 1 of 2)

Supply chain management coordinates and controls the flow of materials, services, information, and finances with suppliers, manufacturers, and customers.Supply chain management partners with suppliers using long-term agreements.These agreements ensure that products are delivered with the right quality, at the right cost, at the right time.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide13

Emphasizing Supply Chain Management(slide 2 of 2)

To enhance the interchange of information between suppliers and customers, supply chain management often uses:Electronic data interchange (EDI), which uses computers to communicate orders, relay information, and make or receive payments from one organization to anotherRadio frequency identification devices (RFID), which are electronic tags (chips) placed on or embedded within products that can be read by radio waves that allow instant monitoring of product locationEnterprise resource planning (ERP) systems, which are used to plan and control internal and supply chain operations

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide14

Lean Principles for Nonmanufacturing Processes

Lean manufacturing practices can also be adapted to service businesses (hospitals, banks, insurance companies, and hotels) or administrative processes (processing of insurance applications, product designs, and sales orders).In the case of a service business, the “product” is normally the customer or patient.In the case of administrative processes, the “product” is normally information.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide15

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Lean Accounting

In lean manufacturing, the accounting system reflects the lean philosophy. Such systems are called lean accounting, and have the following characteristics:Fewer transactionsCombined accountsAll in-process work is combined with raw materials to form a new account, Raw and In Process (RIP) Inventory.Direct labor is also combined with other costs to form a new account titled Conversion Costs.Nonfinancial performance measuresDirect tracing of overhead

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide16

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Fewer Transactions

The traditional process cost accounting system accumulates product costs by department.The recording of product costs by departments facilitates the control of costs. However, this requires that many transactions and costs be recorded and reported, which adds cost and complexity to the cost accounting system.In lean manufacturing, there is less need for cost control.This is because lower inventory levels make problems more visible.The lean accounting system uses backflush accounting.Backflush accounting simplifies the accounting system by eliminating the accumulation and transfer of product costs by departments, but instead, pulls material and conversion costs directly to finished goods.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide17

Combined Accounts

Lean accounting debits all materials and conversion costs to an account titled Raw and In Process Inventory. Lean manufacturing often does not use a separate direct labor cost classification.This is because the employees in product cells perform many tasks—some which are classified as direct and some as indirect.Thus, labor cost (direct and indirect) is combined with other product cell overhead costs and recorded in an account titled Conversion Costs.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide18

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Nonfinancial Performance Measures

Lean manufacturing normally uses nonfinancial measures to help guide short-term operating performance. A nonfinancial measure is operating information that has not been stated in dollar terms. Examples of nonfinancial measures of performance include:Lead timeValue-added ratioSetup timeNumber of production line stopsNumber of units scrappedDeviations from scheduled productionNumber of failed inspections

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide19

Direct Tracing of Overhead

In lean manufacturing, many indirect tasks are assigned to a product cell. Thus, the salary of maintenance personnel can be traced directly to the product cell, and thus, to the product.In traditional manufacturing, maintenance personnel are part of the maintenance department. The cost of the maintenance department is then allocated to products based on predetermined factory overhead rates.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide20

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Activity Analysis

Activities can be used to support operational improvement in the lean enterprise using activity analysis. Activity analysis determines the cost of activities for the purpose of determining the cost of the following:QualityValue-added activitiesProcesses

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide21

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Costs of Quality(slide 1 of 2)

Competition encourages businesses to emphasize high-quality products, services, and processes. In doing so, businesses incur costs of quality.Costs of quality can be classified as follows:Prevention costs are costs of preventing defects before or during the manufacture of the product or delivery of services.Appraisal costs are costs of activities that detect, measure, evaluate, and inspect products and processes to ensure that they meet customer needs.Internal failure costs are costs associated with defects discovered before the product is delivered to the consumer.External failure costs are costs incurred after defective products have been delivered to consumers.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide22

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Costs of Quality(slide 2 of 2)

Prevention and appraisal costs can be thought of as costs of controlling before any products are known to be defective. Internal and external failure costs can be thought of as the cost of controlling quality after products have become defective.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide23

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Quality Activity Analysis

An activity analysis of quality quantifies the costs of quality in dollar terms.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide24

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Pareto Chart of Quality Costs

One method of reporting quality cost information is a Pareto chart. A Pareto chart is a bar chart that shows the totals of an attribute for a number of categories.The Pareto chart gives managers a quick visual tool for identifying the most important quality control cost categories.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide25

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Cost of Quality Report

The costs of quality also can be summarized in a cost of quality report.A cost of quality report normally reports the following:Total activity cost for each quality cost classificationPercent of total quality costs associated with each classificationPercent of each quality cost classification to sales

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide26

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Value-Added Activity Analysis

In addition to prevention, appraisal, internal failure, and external failure, activities may also be classified as follows:Value-addedA value-added activity is one that is necessary to meet customer requirements. Non-value addedA non-value-added activity is not required by the customer but occurs because of mistakes, errors, omissions, and process failures.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Slide27

Process Activity Analysis

Activity analysis can be used to evaluate business processes. A process is a series of activities that converts an input into an output. Management can use process activity analysis to improve a process.

©2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.