Additional Uses For Your Cost System

Sep 04, 2015

A few days ago, I attended a board meeting with the management team of a very successful local manufacturing company. As we were reviewing our plans for 2015-2016, the topic of dashboards available to the management team was introduced. It was thought that such dashboards would result in better management of the business to achieve specific goals.

Part of the discussion was simply related to what can be done to monitor efficiencies on the shop floor and to incorporate those improvements and efficiencies into the overall plan for the next five years.

General manufacturing dashboards offer a variety of information including data related to every aspect of plant operations. However, in this case, limited options were available with regard to determining and controlling day-to-day efficiencies in the plant.

As we continued our discussion, it became apparent that their cost system (which has been useful and accurate in valuing inventories) had never been utilized to control operations. Although their automated reporting system did not include any variance reporting, the other parts of the costing system had all of the components available to implement such a reporting process.

Manufacturing_FactoryIt became apparent their system had significant data holes which would make it difficult to analyze operations appropriately. For instance, the firm is having difficulty obtaining hourly production numbers. Workers are not clocking in and out of various jobs during the day. This leaves some jobs with no labor whatsoever and other jobs having two or three times more labor than what was actually expended. This is a common problem and one which requires disciplined plant management in order to correct.

In the early stages of variance reporting, you could rely on plant-wide efficiencies to determine overall labor efficiencies as you work towards determining job-by-job efficiencies. In order to obtain plant-wide efficiencies, the standard hours created during a given time period must be determined and then compared to the actual hours worked for the same period. Or, it could be done in dollars. Total dollars of labor at standard compared to total dollars of labor at actual. However, such a report does not provide management with a detailed summary of which jobs were profitable and those that were not. It does point to the overall accuracy of the standards and provides summary information as to the overall efficiencies in the shop. This data could useful in an environment where such reporting was never available.

At the conclusion of the meeting, it was determined that several additional dashboard reporting formats were required. I believe this discussion did set in motion processes which were required to expand the use of their costing system in the future.

Have you had similar reporting issues and what have you done to resolve them?

Categories: Cost Accounting