Traditional cost accounting is based on standard cost structure: standard material costs, standard labor, and standard cost. Generic costs are usually expressed as a percentage of the labor cost. Over time, overhead costs are higher than labor costs than higher mechanization and automation.
The risk associated with additional costs is the distribution process. General costs are allocated because there is no direct link to the activity using resource and expense. So there is an averaging process. There is a certain amount of fine-tuning in the ABC cost system, but this is also not transparent. Capacity costs are allocated on a given capacity utilization level, which is almost always dynamic.
Statements are always based on standard costs and deviations, provided that the products are manufactured at a standard price. This is not necessarily true. Decisions made solely on the basis of financial statements may be incorrect. This is illustrated. The change in capacity in the financial statement is unfavorable. The Operational Manager can cure it with higher production and is as close as possible to the specified or planned production batches. This has caused a number of problems in improving the bottom line of the standard cost format of the financial statement, such as overproduction resulting in unused or unused inventories and resulting in shipments because of the diversion of resources, deliveries are the lowest overhead costs.
This is why it is necessary to create flexibility in the processes and focus on timely production to meet customer needs. This in itself improves profitability in the medium and short term. Lean usually focuses on the total cost rather than on the cost of each site, which can make erroneous decisions.
Targeting begins with the assumption that the market determines the sales prices. The balance after the deduction of the profit from the sale price to a given profitability level is the target cost. Anything the customer does not pay is waste and needs to be eliminated. Lean only thinks it eliminates all forms of waste in the business process.
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