Study_Guide_Sample - Prologue Managerial Accounting and the...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Prologue Managerial Accounting and the Business Environment Study Suggestions a The prologue describes important aspects of the contemporary business environment. While there are no written assignments, you should be fa- miliar with the major ideas as background for your study of managerial accounting. 1 HIGHLIGHTS A. In many industries, a company that does not con- tinually improve will find itself quickly overtaken by competitors. The text discusses four major approaches to improvementJust-In-Time (JIT), Total Quality Management (TQM), Process Reengineering, and the Theory of Constraints (TOC). These approaches can be combined. B. The Just-In-Time (JIT) approach is based on the insight that reducing inventories can be the key to im- proving operations. Work in process inventories (i.e., inventories of partially completed goods) create a number of problems: 1. Work in process inventories tie up funds and take up space. 2. Work in process inventories increase the throughput time , which is the amount of time required to make a product. If a company has two weeks of work in process inventories, then it takes two weeks longer to complete a unit than if there were no work in process inventories. Long throughput time makes it difficult to respond quickly to customers and can be a major competitive disadvantage. 3. When work in process inventories are large, partially completed products are stored for long peri- ods of time before being passed to the next work- station. Therefore, defects introduced at a workstation may not be noticed for quite some time. If a machine is out of calibration or incorrect procedures are being followed, many defective units will be produced be- fore the problem is discovered. And when the defects are finally discovered, it may be very difficult to track down the source of the problem. 4. Because of long throughput time, units may be obsolete or out of fashion by the time they are finally completed. 5. Large work in process inventories encourage sloppy procedures and mask inefficiencies and prob- lems in the production process. When inventories are reduced, these problems are uncovered and can be identified and dealt with. C. Under JIT, inventories are reduced to the absolute minimum levels possible. 1. Just in time means that raw materials are re- ceived just in time to go into production, subassem- blies are completed just in time to be assembled into products, and products are completed just in time to be shipped to customers. 2. In JIT, the flow of goods is controlled by a pull approach; work is initiated only in response to customer orders. In contrast, under conventional sys- tems parts and material are pushed forward to the next workstation regardless of need. There is also a tendency in conventional systems to seek to keep everyone busy. The result in both cases is a needless buildup of inventory....
View Full Document

Page1 / 153

Study_Guide_Sample - Prologue Managerial Accounting and the...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online