Costing Accounting Is Not Like Cooking!

Jun 25, 2014

I really enjoying cooking, especially baking. Often, when I am doing these things I add a little of this and a pinch of that. Measuring and being precise is not always necessary when cooking. Sometimes it is necessary to base your decisions on taste or smell. To me, that’s all part of the fun and creativity surrounding cooking. One of my favorite things to make is cream cheese brownies with chocolate frosting from scratch. They typically are devoured within a short time and are quite delicious! I have many other things I enjoy making as well, but desserts to me are the most fun!

Costing accounting is not like cooking. Exact measures and reporting are what make for a well-oiled and efficient system. I met with a client not too long ago and we were discussing their change-over and set-up times for which they had various lines These lines required different types of resin and coloring based on the process. I asked him how long each of those things typically takes and he said “oh not too long”

Well, “not too long”could mean different things to different people. For one person that could be 15 minutes, to another an hour. In addition, when someone attempts to estimate timing, errors occur as their perception is usually dramatically off from reality.

Some set-up and change-overs require quite a bit and it is at times possible to allocate costs directly to these activities. Without having accurate timing and process information doing so would be impossible.

Other things that can be affected by not knowing the accurate run-length of your work cell or machine. For example, productivity may be incorrect. You could be producing 500 widgets in an 8 hour shift thinking you can only make around 62 widgets an hour when in reality there is a 2 hour set-up time so you are actually making 83 widgets an hour during actual production.

It is important to have reasonable and accurate information. Just guessing or assuming can often leave you in an uncomfortable position that will only lead to bad decisions down the road. Take the time and walk to the other side of the wall and view these activities occurring, it is the only way to really know.

Categories: Cost Accounting