Accounting is an integral part of the planning and control system of any manufacturing operation. Yet in many companies the accounting function has failed to adapt to a new competitive environment that requires continuous improvement in the design, manufacturing, and marketing of a product. As a result, corporate strategies that depend on success in manufacturing are endangered by obsolete and restrictive accounting systems. This article describes how one division brought its accounting systems into line with the rest of the operation.
1. See H.T. Johnson and R.S. Kaplan, Relevance Lost: The Rise and Fall of Management Accounting (Boston: Harvard Business School Press, 1987).
2. For a description of the impact of transactions on overhead, see J.G. Miller and T.E. Vollmann, “The Hidden Factory,” Harvard Business Review, September–October 1985, pp. 142–150.
3. This problem was solved by the parts burdening system described later in the paper.
4. An engineering change order is an example of what Miller and Vollmann call a change transaction in “The Hidden Factory,” p. 146.
5. For a discussion of the impact of product proliferation on complexity, and the failure of traditional cost systems to reflect the cost of this complexity, see R. Cooper and R.S. Kaplan, “How Cost Accounting Systematically Distorts Product Costs,” in Field Studies in Management Accounting and Control, W. Bruns and R.S. Kaplan, eds. (Boston: Harvard Business School Press, 1987).
The authors gratefully acknowledge the helpful comments on previous drafts made by Robin Cooper and H. Thomas Johnson.