The manager of a large semiconductor production departmentexpressed his disdain
ID: 2446787 • Letter: T
Question
The manager of a large semiconductor production departmentexpressed his disdain for the cost information he was presentlygiven:
Cost variances are useless to me. I don’t want to everhave to look at a cost variance, monthly or weekly. Daily, I lookat sales dollars, bookings, and on-time delivery (OTD)-the percentof orders on time. Weekly, I look at a variety of quality reportsincluding the outgoing quality control report on items passing thefinal test before shipment to the customer, in-process quality, andyields. Yield is a good surrogate for cost and quality. Monthly, Ido look at the financial reports. I look closely at my fixedexpenses and compare these to the budgets, especially ondiscretionary items like travel and maintenance. I also watchheadcount.
But the financial systems stilldon’t tell me where I am wasting money. I expect that if Imake operating improvements, costs should go down, but Idon’t worry about the linkage too much. The organizationaldynamics make it difficult to link cause and effect precisely.
Required
Comment on this production manager’s assessment of hislimited use for financial and cost summaries of performance. Forwhat purposes, if any, are cost and financial information helpfulto operating people? How should the management accountant determinethe appropriate blend between financial and nonfinancialinformation for operating people?
Explanation / Answer
Hey Pee Wee The production manager has indeed underestimatedthe use of financial & Cost summaries. Variance reports, Cash budgets , Sales Budget ,Production budget are the reports which are not only useful to the management , butalso for the operating personnel. These reports tell the manager the bottleneck areas, the key areas for improvement & the ways & means to achievethe targets. The finacial reports tell us the results of theopearation. Cost summaries tell us ways to achieve ourgoals.
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