Managerial Accounting vs. Cost Accounting Essay

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Cost accounting involves computation of the expenses in a business. It also involves preparation of budgets and computation of variances. To compute variances, cost accountants prepare standard costs then compare them with the actual cost. The aim of this is to control expenditure and thus increase costs. Cost accounting is normally concerned with the cost of production per unit. It is a subset of managerial accounting. Cost accounting involves large amounts of data to facilitate computation. The reports are usually lengthy and complicated.

Managerial accounting is concerned with production of accounting information to aid managers’ decision making. This information is obtained from all levels of the organization. Unlike cost accounting, managerial accounting involves both financial and non-financial information. Cost accounting is just one part of managerial accounting. Managerial accounting information is highly summarized. The reports are usually short and simple to understand. This helps managers to make strategic decisions.

The Lean Production Philosophy

The automobile manufacturer Toyota developed the lean production philosophy. The aim was to produce cars with the least inefficiencies possible. All activities involved in production should add value to the product. Value is determined by what the customer is willing to pay for. This philosophy identifies seven types of inefficiencies, referred to as Muda, which should be eliminated from the production line. They include inventory, defects, motion, waiting, overproduction, transport and over processing.

The implementation of this philosophy requires use of Kaizen and Just in Time philosophy. Kaizen involves making small continuous improvements in daily operations (Horngren, Sundem, & Schatzberg, 2010). Eventually, these improvements will result in eliminated waste and increased profits. Just in Time involves producing only the necessary items at the required times. The combination of this practises results in Lean Production.

Accounting in Lean Production Philosophy

There is a great difference between conventional accounting and Lean accounting. Conventional accounting recognizes inventory as an asset to the firm. Lean production philosophy classifies inventory as a waste and liability. Standard costs are used in conventional accounting. In Lean Accounting, standard costs are shunned. This is because they are not consistent with the philosophy of Kaizen. Kaizen encourages continuous improvement while conventional accounting encourages maintenance of the status quo.

Lean accounting is based on the addition of value along the supply chain. Conventional accounting aggregates all costs incurred at all stages into one pool. Companies using traditional accounting create reports less often than those using lean accounting do. The current information obtained from lean accounting is more relevant for decision-making.

Preparation for Reduced Budget

Budgetary reduction is usually considered a negative event in organizations. Dr White should prepare the staff for the impeding changes. She should summon them for a meeting and explain the rationale for the changes. However, she should make it clear that the clinic will still pursue its objectives. If any employees will be laid off, she needs to prepare them psychologically. She also needs to prepare the employees who will be retained for an increased workload.

In choosing the costs to reduce, I would recommend separating the discretionary from the fixed costs. It is easier to alter discretionary costs on short notice than to alter fixed costs. Secondly, she should rank the established discretionary costs based on relative importance (Weetman, 2007). This prioritization will enable her to establish which costs to reduce and which to maintain. For example, advertising can be reduced since there is already excess demand.

References

Horngren, C. T., Sundem, G. L., & Schatzberg, J. (2010). Introduction to Management Accounting. London: Person Education.

Weetman, P. (2007). Financial and Management Accounting: An Introduction. Chicago: Prentice Hall.

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