Lecture 15 - Japaneese costing

Question 1

(!) Describe japaneese costing in general

Answer 1

General:
- Driven by CA standards
- Motivation > Accurate data
- Influencing > Informing role
- Guideline, not practical method
- Can be arbitrary
- CA have social binding power
- No punishment: Law
- Being specific clash with culture
- Cost records for financial reporting: Same as western
- Cost records for managerial purposes: Differ from western
- Thoughts on cost system > costing itself

Topics:
- Target costing
- Functional analysis
- Value engineering / VE
- TQC
- Kaizen activity

CA-systems:
- Job costing
- Process costing: Lot costning most popular: Shared production lines instead of individual

Question 2

Relate production to management accounting

Answer 2

• Central aspect of MA
• Flexibility in production is central
• MA as servant, not its master
• Not designed to facilitate MA

Question 3

(!!!) Describe Kousuu & Gentan-i & how the info benefit target management

Answer 3

Kousuu:

General:
- Physical ress. consumption unit
- Form of cost driver: Just diff. perceiving
- Reduce activities for cost driver
- Find improvements > Errors
- Constant improvement

Target management info-benefit:
- Used in Value engineering / VE
- Help set prices
- Help analyzing profitability
- Help plan future profitability
- Establish & monitor standard conversion cost of products
- Help evaluate inventory & WIP
- Provide insight into product portfolio analysis & planning
- Help identify & manage productivity & cost reduction
- Help communication
- Info help establish relevant performance standards
- Basis for generating regular flow of highly detailed info on operational performance

__________

Gentan-i:

General:
- Final product
- Kousuu expressed by various time components for one unit
- Non-direct material consumption

Target management info-benefit:
- Scheduling workers
- Evaluate Kousuu reduction
- Evaluate productivity
- Budgeting
- Plan & evaluate capital investment

Question 4

(!) What are the limitations of Kousuu & Gentan-i?

Answer 4

General:
- Not precise
- No specific time horizon
- Maybe not fixing right thing

Reasons to being nonprecise:
- Forward looking
- Improvement oriented
- Not used for cost control: Perceived offensive
- Accept numbers always change
- Allow mobilizing more ideas
- Build on thoughts as LEAN & JIT

Question 5

(!) Describe the functional cost analysis

Answer 5

General:
- Could be added to levers
- Alternative cost object
- Activities to provide functionality
- Highlight important functions
- Since “cost type” lead to specific kind of thinking
- Accounting contribution to VE
- Encourage creative plans for cost reductions
- Product function as basis for structured approach to CM
- Help identify where to invest: Enhance profit by increased costs instead of pure cost reduction
- Usable throughout PLC
- Also possible for OH costs
- Can be integrated with ABC
- Value ratio poss. to calc. pr. function: Target cost / Actual costs
- Eg. A pen: Major function to mark

Benefits:
- Ref. VE & Value added
- Better for customer needs
- Integrate both customer view & market context in target costs
- Ensure following market changes
- More abstract: Functions > Parts
- Often lead to new products or cost effective ways

Question 6

(?) Describe the steps in functional cost analysis

Answer 6

1. Choose field for analysis: Eg. product
2. Define objective incl. target cost
3. Select team
4. Gather info
5. Define functions of object
6. Draw functional family tree
7. Evaluate function: Existing cost & customer value
8. Suggest alternatives: Compare with target costs. Brainstorming.
9. Decide on alternative
10. Review actual result

Question 7

(!) Explain how absorption costing create incentive to build up stocks

Answer 7

• Stock when demand fluctuate
• If both VC & FC capitalized in WIP & finished goods
• VC follow products
• FC parked in stock: No burden on this years profit
• Prevented by lean management
• Eg. ABC

Question 8

(!) Describe the lean philosophy & its view on stock

Answer 8

General:
- Idea of no stock
- Journey, not destination
- More dynamic way of thinking than rigid MC/MR
- Eliminate waste
- Not ABC & capacity accounting
- Highlight problem in process, not at report
- Ref. Kaizen costing
- Ref. JIT

____________

View on stock:

Costly:
- Take up space
- Require handling

Eat cash directly:
- Borrowed cash
- Cash tied to stocks

Eat cash indirectly:
- Opportunity costs
- Excess cash could be invested elsewhere

Stock may become outdated:
- Technological development
- Customer demand

Other:
- Tie up working capital
- Hide prod. inefficiencies
- Hide defects
- A non-value-adding activity