Management Accounting Techniques

Individual Assignment

Submission Date: 30 September, 2011 Daubek Ismailov TP026716 UC3F1107AF

Management Accounting Techniques

2011

Contents
Question A: ..................................................................................................................................... 3 Question B: ..................................................................................................................................... 8 Question C: ................................................................................................................................... 11 Question D .................................................................................................................................... 12 References: .................................................................................................................................... 13

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Management Accounting Techniques Question A:

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The employees of the new retail of Super Printing to assist serve customers in effective and efficient way may implement some theories of management and cost accounting. Firstly, the employees need to acknowledge whether customers are satisfied with the quality of service and products or not. To achieve this goal they should implement some theories from total quality management. According to the Reid & Sunders (2005) total quality management an integrated organizational effort designed to improve quality at every level. So, now it is clear that the main objective of total quality management is the quality of service and product. There are six common definitions of quality Reid & Sunders (2005). Each of them the employees can implement to know the effectiveness and efficiency of the outlet. Conformance to specification how well the product and service meets the targets and tolerances determined by its designers. Fitness for use definition of quality that evaluates how well the product performs for its intended use. Value of price paid quality defined in terms of product or services usefulness for the price paid. Support services quality defined in terms of the support provided after the product or service is purchased. Psychological criteria a way of defining quality that focused on judgmental evaluations of what constitutes product or service excellence. Using the terms above an employee can determine and monitor the quality of products and services. Further, it will be briefly discussed how to implement them to the outlet Super Printing. First concept, conformance of specification, can determine if the time required for printing, binding and laminating meets the targeted minimum and maximum spending time. Fitness of use will help to acknowledge which operating system customers use more, Windows or Macintosh. The next concept is more related to setting price looking to competitors. For example, customer would not have a desire to print in Super outlet if the price per page is higher than Kinkos and staple, and, consequently, the price should be equal to quality for a given product or service. The fourth concept is focused not only on product and service, but also on some other aspects. For example, does the Super Printing outlet have enough space to serve customers, or are the screens of monitors separated from each other, so that other customers or stuff cannot see what is in the

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screen of a client. The last concept is more concentrated on reputation and on environment in a workplace, and the employees of Super Printing outlet should create friendly atmosphere in a workplace to be more effective and efficient. Some other concept of total quality management can be implemented by Super Printing outlets employees: costumer focus, employee empowerment, use of quality tools, product design, process management and managing supplier quality (Reid & Sunders 2005). First is the concept of costumer focus, which means that companies should identify and meet customers needs. For example, the employees should investigate which operational systems do the clients prefer more, Microsoft Windows or Macintosh, also which type of binding they use more, or which product do the buyers prefer more. Second concept is employee empowerment (Reid & Sunders 2005) argues that Part of the TQM philosophy is to empower all employees to seek out quality problems and correct them. With the old concept of quality, employees were afraid to identify problems for fear that they would be reprimanded. Often poor quality was passed on to someone else, in order to make it someone elses problem. The new concept of quality, TQM, provides incentives for employees to identify quality. Employees are rewarded for uncovering quality problems, not punished (Reid & Sunders 2005). By implementation of this concept the employees, for instance, can realize by their selves how many and which cartridges they should buy or in what time it is better to turn off computers when the number of customers using computers decreases. Consequently, the employees make service more effective and efficient, and also economize electricity. There is another approach under this concept called team approach. The main idea is that two head are better than one. In other words it means that people working in a team and using brainstorming and sharing ideas and information will be more productive and efficient. So, Super Printing also can use it to achieve good effectiveness of service. The next concept is the use of quality tools. It consists of seven different tools, but for Super Printing it will be useful only 4 of them: 1. Cause and Effect diagrams. It is also called fishbone diagram. The employees of the outlet should use this diagram to identify causes and further effect of the problems. For example, if the computers work slowly the reasons may be old computers, not updated antivirus or software, so that using this diagram it will be clear to identify exact causes of the problem. From the Figure 1.1 it is seen cause and effect relationship.

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Management Accounting Techniques

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Old Computers

Old Antivirus

Computers work slowly

Old Operational System

Threats

Figure 1.1 shows the cause and effect relationship of the problem

2. Flowchart is the diagram where there is a clear vision of the steps of a process. So, the new outlet of Super Printing can use this tool to understand how the task is done. For example, to make laminated badges it need to make a design in a computer, print it out on printer and finally to laminate it on a special machines. The Figure 1.2 illustrates this process.

Buy and load special hard paper

Buy and load color cartridge Print out the badges Prepare a design of the badge Laminate printed badges

Figure 1.2 shows the steps of preparing badges

3. Checklist is list of defects which occur during the process. It clearly shows how often defects occur. The employees of Super Printing may use this method to monitor the frequency of defects. For example, the tool will be helpful to understand which areas need to improve. In the Figure 1.3 it is clearly seen that the printing problem occurs more often, so employees can see which area must be improved. These tools can be used in a monthly basis, or weekly.

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Management Accounting Techniques

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Defect Type Printing problem

Number of defects

Total

16

Internet connection problem Binding problem Lamination problem

6 1 3

Figure 1.3 shows which line more often has defects.

4. Patero analysis is a technique used to identify quality problems based on their degree of importance. The logic behind Pareto analysis is that only a few quality problems are important, whereas many others are not critical (Reid & Sunders 2005). To use this concept the employees of Super Power can realize what the most significant problems of services and products do they have. In the Figure 1.4 it illustrates how it can be implemented. The percentage of printing problem is 45%, internet problems is 22% binding 17%, laminating 18%. So it is clear that the priority and more important problem which must be solved to meet clients satisfaction is the printing, because it occurs more often.

Patero Analysis
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Printing Problems Internet Problems Binding Problems Laminating Problems

Patero Analysis

Figure 1.4 shows the percentage of occurring the problems in Super Printing

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Management Accounting Techniques

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Finally, for more professional analyzing and solving the problem of customers satisfaction it can be useful the theory of continuous improvement, the philosophy of never ending improvement. Reid & Sunders (2005) argues that Continuous improvement, called kaizen by the Japanese, requires that the company continually strive to be better through learning and problem solving. Because we can never achieve perfection, we must always evaluate our performance and take measures to improve it. (Reid & Sunders 2005). So, from the definition above it is clear that employees should be in progress and development always. The theory mostly based on the concepts of PDSA. The concept of PDSA cycle consists of 4 stages: plan-do-study- act. The first step is plan, and in this stage Super Printing need to collect all relevant information, identifies problems and makes a plan for further development. The next stage focuses on the implementing of the plan. The third step mostly carries about decision making process, so that the employees of the outlet need to identify problems from the previous stage, develop more suitable solutions and finally choose the best decision among alternatives. On the stage four, the Super need to implement the solutions and control whether it done properly or not. After this stage, the first stage of planning starts again, so that it calls continuous improvement which never finishes.

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Management Accounting Techniques Question B:

2011

David Tanaka, the manager of the new outlet of the Super Printing need to implement cost and management accounting to achieve good profitably, decrease time of work performance, reduce defects, and be competitive in the market. Firstly, as a manager, David can implement the theory of Six Sigma. According to Ray, Eric & Peter (2008) Six Sigma is a process improvement method that relies on customer feedback and factbased date gathering and analysis techniques to drive process improvement the term Six Sigma refers to a process that generates more than 3.4 defects per million opportunities. Formal and informal feedback to analyze which problems they should improve (Ray, Eric & Peter 2008). By using the theory of Six Sigma the outlet Super Printing can improve its performance. In the table below there are five stages of the theory.

Stage Define

Goals Establish the scope and purpose of the project Diagram the flow of the current process. Establish the customers requirements for the process. Gather baseline performance data related to the existing process. Narrow the scope of the project of the most important problems. Identify the root cause(s) of the problem identified in the Measure stage. Develop, evaluate, and implement solutions of the problem. Ensure that the problems remain fixed. Seek to improve the new methods over time.

Measure

Analyze Improve Control

Source: Peter C. Brewer and Nancy A. Bagranoff, Near Zero-Defect Accounting with Six Sigma, Journal of Corporate Accounting and Finance, January February 2004, pp.67-72

In first stage Super Printing need to realize what its targets are, so as the manager, David Tanaka needs to set the main objectives of the company. These objectives are making a good profit, minimize number of defects, achieve clients satisfaction and attract more customers, decrease working process hours, dominate among competitors in the market. After the defining the primary goals, the manager needs to list of tasks which can help to achieve these goals. So to

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achieve all targets mentioned above, David firstly should calculate all revenues, and then deduct the all operating expenses and purchasing costs from shop, and, as a result, he will acknowledge the profitability of the outlet. Then, to identify which products are more profitable, and which are not. Identify target audience, focus group, is it students, or stuff, or faculty members. Realize some other factors which can help to get the goals. After identifying the primary objectives and making list of tasks which will help to achieve them, David should measure and collect data from the previous stage. So he needs to get feedback, formal and unformed from customers to realize what he needs to improve. It also will help to investigate if customers are satisfied with the service and products of Super Printing or not. Collect data about what is the most profitable period during the day, during the month or semester. For example, during the midterms and final exams, purchases from shop need to be more than during typical time. So during the exams employees should be prepared to assist customers. In this stage David needs to identify how often product defects occur. What are the competitors prices, and what are the primary goods of Kinkos and staples. So, in general in this stage David needs to collect all possible information about his and competitors outlets. Turning to the next stage, which is called analyzing stage, Tanaka should identify the problems and develop the possible solutions for them. David needs to consider activity-based costing and management, and compare standard and actual time to perform the task. Consequently, based on this research the manager should realize what he needs to do to achieve planned performance hours. In this stage Tanaka needs to take into consideration quality control costs and quality failure costs. Consideration quality includes prevention costs and appraisal costs. The Table below shows examples of quality costs associated. Appraisal costs are the costs which occurred during testing and inspections to uncover the defect. For example, if the operational system Microsoft Windows get viruses and computers will not work properly, employees need to buy a new antivirus and set up the new version of Microsoft Windows, which is wasting of time and money, and also may have some negative consequences of clients desire to use the computers because their flash-cards can get viruses. Quality failure costs consist of internal failure costs and external failure costs. Internal failure costs are the costs during the investigation of poor quality of product before it go to the market. Implementing this, David Tanaka can know what the cost of testing new products is. For example, it will be useful to realize how it costs to prevent failures during the work, so that escape customer dissatisfaction of service and product.

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Management Accounting Techniques

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Prevention Staff training Requirements analysis Early prototyping Fault-tolerant design Defensive programming Usability analysis Clear specification Accurate internal documentation Evaluation of the reliability of

Appraisal
Design review Code inspection Glass box testing Black box testing Training testers Beta testing Test automation Usability testing Pre-release out-of-box testing by customer service staff

development tools (before buying them)

or of other potential components of the product

Internal Failure
Bug fixes Regression testing Wasted in-house user time Wasted tester time Wasted writer time Wasted marketer time Wasted advertisements Direct cost of late shipment Opportunity cost of late shipment

External Failure
Technical support calls Preparation of support answer books Refunds and replacement with updated product Lost sales PR work to soften drafts of harsh reviews Lost customer goodwill Warranty costs and other costs imposed by law

Source: Cem, K 1996, Quality Cost Analysis: Benefits and Risks, January, viewed 28 September 2011, < http://www.kaner.com/pdfs/Quality_Cost_Analysis.pdf>

The second concept is the External failure costs. It is more related to costs are the costs during the investigation of poor quality of a product after it goes to the market. Using this manager can calculate the expenses of investigations of external failures, like problems with quality of printing, some defects of purchased products which already sold to a client, the quality of laminating.

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Management Accounting Techniques Question C:

2011

The president of Super Printing can use the benchmarking concept in decision making and making profit. According to William (2002) Benchmarking is simply the process of measuring the performance of one's company against the best in the same or another industry. Benchmarking is not a complex concept but it should not be taken too lightly. Benchmarking is basically learning from others. It is using the knowledge and the experience of others to improve the organization. It is analyzing the performance and noting the strengths and weaknesses of the organization and assessing what must be done to improve. (William 2002) There are three main types of benchmarking: process benchmarking, performance benchmarking and strategic benchmarking. So, process benchmarking focus on the daily basis performance. It more concerns on the customer complaint process, the order fulfillment process, the billing process and the recruitment process (William 2002). The president of Super Printing may use this theory to monitor which of the internal product lines and services are more profitable and which are not. After this, identify which products and services need to be provided in the new outlet. Also, to investigate what space requires running the business normally and meeting customers satisfaction. In performance benchmarking organizations want to look at where their product or services are in relation to competitors on the basis of things such as reliability, quality, speed, and other product or service characteristics (William 2002). So, by implementing this concept the president can investigate and compare the data with other competitors. He should compare the prices of the same products with Kinkos, also which products are more profitable and which are primary product line of Kinkos. So it will be clear vision in which aspects does Kinkos dominates. The strategic performance is more useful for top management because it is more concerned on long-term goals and also focused on process of competence of the companies (William 2002). In this type of benchmarking, based on previous research, the president need to develop some new strategies to develop and become the dominator in the market. For example, develop quality of the service or product if Kinkos make more profit on a given product line, or if the Kinkos has good advertisement strategy, develop and implement some strategies to recruit the company.

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Question D
Cost and Management accounting plays a significant role in a decision making process on the all level of management. This study investigated the usefulness and described on the example of the Super Printing how can the management on different levels implement cost and management accounting theories. In the part-A the main purpose of employees to achieve effectiveness and efficiency is to provide good quality of service and products. It is clearly seen how various total quality management concepts may assists them to get good quality. From the part-B, it is advised to new manager David Tanaka on basis of Six Sigma theory achieve good profitability, decrease number of defects and minimize time of work performance. Also the concept of activity-based product, consideration quality control costs and quality failure costs are useful for the manager. In part-C the main target of the president and the main objective of the company are to be competitive and become the dominator in the market. So, from the study it is identified that different types of benchmarking are useful for president of the company.

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Management Accounting Techniques References:

2011

Beecroft, GD <dennis@g-dennis-beecroft.ca> 2000, Cost of Qualit, Quality Planning and The Bottom Line, 20 October, gBennis Beecroft Inc, viwed 28 September 2011, <http://www.bisrg.uwaterloo.ca/archive/RR-01-08.pdf>

Cem, K 1996, Quality Cost Analysis: Benefits and Risks, January, viwed 28 September 2011, < http://www.kaner.com/pdfs/Quality_Cost_Analysis.pdf> Ray, HR, Eric, WN & Peter, CB 2008, Managerial Accounting, 12th edn, McGraw Hill, Singapore Reid, RD & Sunders, NR 2005, Total quality management, Management Operations: An integrated approach, 2nd edn, Wiley & Sons, USA, pp.136-170

William, ML 2002, Benchmarking: understanding the basics, The Coastal Business Journal, Vol.1, no.1, pp.57-62

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