3. The Modern Environment Flashcards
What are the three significant developments that have lead to a change in performance and accounting systems?
- Globalisation
- Technology
- Fast changing consumer tastes
What are the principle changes resulting in global developments?
- Shorter production life cycles
- Greater competitive pressures
What is the cost of quality?
The difference between the actual cost of producing, selling and supporting products or services and the equivalent costs if there were no failures during production or usage.
What are the four types of quality cost?
- Prevention (Conformance)
- Appraisal (Conformance)
- Internal Failure (Non-Conformance)
- External Failure (Non-Conformance)
What are prevention costs?
Costs incurred prior to or during production in order to prevent substandard or defective products or services from being produced
What are appraisal costs?
Costs incurred in order to ensure that outputs produced meet required quality standards
What are internal failure costs?
Costs arising from inadequate quality which are identified before transfer of ownership from supplier to purchaser
What are external failure costs?
Costs arising from inadequate quality which are discovered after transfer of ownership from supplier to purchaser
What are costs of conformance?
Costs of achieving specified quality standards
What are costs of non conformance?
The cost of failure to deliver the required standard of quality
What is the Just In Time philosophy?
Processes should be geared up to providing exactly what the customer wants, exactly when they want it.
What are the two steps of JIT?
- JIT purchasing - resources should be acquired just as you need to use them
- JIT production - finished goods should roll off the production line just as the customer arrives to purchase them
Is JIT a push or pull system?
Pull - responds to demand
What are the 7 characteristics of a successful JIT purchasing system?
- Stable communication
- Small number of suppliers
- Nearby suppliers
- Long-term relationships
- Working with suppliers for quality
- Not being hung up by single sourcing
- Buying from small firms
What are the 6 characteristics of a successful JIT production system?
- Reduced production run set up times
- Reduced cycle (lead) times
- Flexible staff
- Efficient quality control
- Customer order driven production
- Reduced inventory levels
What is the impact of JIT on accounting techniques?
Zero inventories therefore no need for separate ledger accounts, zero variances for price and usage
What is throughput accounting?
Dealing with bottlenecks or constraints, the less efficient elements within an organisation that limit workflow
What is the benefit of eliminating a bottleneck?
The business gets more goods through the production process to the consumer, leading to increased sales and lower inventories
What is the throughput a measure of?
How fast revenue is being earned compared to how fasts costs are being incurred
What is the throughput contribution?
Sales revenue less only direct materials
What is the throughput conversion cost?
All operating costs except for direct materials
What is the theory of constraints?
A procedure based on identifying bottlenecks, maximising their use, subordinating other facilities to the demand of the bottleneck facilities, alleviating bottlenecks and re-evaluating the whole system
What are the 5 steps of alleviating bottlenecks?
- Identify the binding constraint
- Exploit the constraint - get maximum output
- Subordinate everything else - all operating at the same rate as binding constraint
- Elevate the constraint - increase resources to make more efficient
- Return to step 1
What are the steps to finding the throughput maximising output and associated throughput contribution?
- Identify the bottleneck
- Find the throughput contribution per unit of bottleneck resource
- Prioritise production of the product with the higher throughput contribution
- Calculate how many of each product can be produced given the constraint
- Multiply units by t/put contribution per product
