2 - Chapter2: Basic Cost Management Concepts and Accounting...

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Chapter2: Basic Cost Management Concepts and Accounting for Mass Customization Operations Manufacturing Operations and Manufacturing Costs Although there are tens of thousands of manufacturing firms, their basic production processes can be classified into five generic types. The nature of the manufacturing process can affect the manufacturing costs incurred. Therefore, the management team is in a better position to manage these costs if the relationship of the production process to the types of costs incurred is understood. Exhibit 2-5 defines and describes the five generic manufacturing processes. 1 L earning O bjective 4 List five types of manufacturing operations and describe mass customization. We will study the role of managerial accounting and cost management in four of these manufacturing processes. This chapter will focus on a mass customization operation, similar to that used by Dell Inc. Chapter 3 will examine managerial accounting techniques used in job-shop and batch-processing operations. Chapter 4 will focus on the cost accumulation and cost management processes in a continuous-flow manufacturing environment. Exhibit 2-5 Types of Production Processes
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MASS CUSTOMIZATION “There is no better way to make, sell, and deliver PCs than the way Dell Inc. does it, and nobody executes that model better than Dell .” The company's machines are made to order and delivered directly to customers, who get the exact machines they want cheaper than they can get them from Dell 's competition. “ Dell has some 24 facilities in and around Austin and employs more than 18,000 local workers. Michael Dell , the company's restless founder, is constantly looking for ways to improve the company's operations.” 2 In one year alone, Dell cut $1 billion out of its costs—half from manufacturing—and Dell executives vowed to cut another $1 billion. M anagement A ccounting P ractice Dell Inc. p. 44
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At the Topfer Manufacturing Center in Austin, workers “scuttle about in the 200,000-square-foot plant like ants on a hot plate. Gathered in cramped six-person ʻ cells, ʼ they assemble computers from batches of parts that arrive via a computer-directed conveyor system overhead. If a worker encounters a problem, that batch can instantly be shifted to another cell, avoiding the stoppages that plague conventional assembly lines. Dell is constantly tinkering with factory layout and product design to move computers through at a higher velocity.” In spite of the ups and downs of the computer technology industry, most observers believe that Dell 's business model will continue to be successful. However, the company has acknowledged that it needs to upgrade its tech support services in order to better serve its customers. 3
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2 - Chapter2: Basic Cost Management Concepts and Accounting...

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