- 20 Marks
PM – May 2024 – L2 – SB – Q2 – Costing Systems and Techniques
The impact of lean manufacturing on variance analysis and the transition from traditional costing to lean accounting.
Question
Kenny Katuma (KK) manufactures standard engine components. It operates a costing system based on absorption costing and standard costs, and the management control system is based on monthly variance analysis reports.
KK has recently appointed a new CEO, who has begun to introduce changes to the manufacturing systems. He believes in lean manufacturing principles and has begun to establish a just-in-time manufacturing system, with a focus on reducing inventories and production cycle times, and eliminating waste. Discussions are in progress with major suppliers to introduce just-in-time purchasing arrangements.
The CEO has informed the management accountant that changes will be needed to the company’s internal accounting systems. He has also indicated that KK will need a lean management accounting system to support its lean manufacturing system. The CEO is dissatisfied with many features of the current management accounting system. There are many errors in data capture for the cost accounting system, and monthly variance reports are not produced until two weeks after the end of each month. He also considers that wrong information is being reported.
Required:
a. Explain the main principles of a lean information system. (6 Marks)
b. Discuss the reasons why KK’s current cost and management accounting systems do not fulfill the requirements of lean information systems. (7 Marks)
c. Identify the changes that should be made to KK’s management accounting system in order to turn it into a lean information system. (7 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Cost reduction, Lean Accounting, Lean Manufacturing, Variance Analysis
- Level: Level 2
- Topic: Costing Systems and Techniques
- Series: MAY 2024