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Costing Best Practices
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a comparison of standard material quantities to actual usage. This requires
accurate bills of material, production records, and inventory counts; without
them, a comparison of these records will not result in an accurate determina-
tion of scrap costs.
• Create a floor reporting system. This is the approach used the most by those
companies with poor production records. If they cannot use the preceding
option due to the existence of inaccurate bills of material, production records,
or inventory records, they must require the production staff to manually track
the scrap they are generating. This approach tends to underreport scrap, since
production personnel do not like to report on the inefficiencies of their own
department. Also, the scrap reporting by the manufacturing personnel can be
voluminous and may require extra staff to summarize and analyze. Thus, this
approach is prone to inaccuracy and high reporting costs.

Of the previous scrap reporting methods, some are not accurate enough to pro-
vide more than a rough guess at the exact items that were scrapped; these include
weighing the scrap or perusing the receipts from scrap purchasers. The other two
reporting systems reveal the most useful information because they detail the exact
items that were scrapped. Of the two, comparing actual to standard usage is the eas-
iest to implement, since it requires no additional reporting by the manufacturing
personnel; however, the standards must be accurate, or the basis of comparison will
not function properly. If the standards (e.g., bills of material, production records,
and inventory records) are not accurate, one is faced with the problem of either cor-
recting the underlying information or implementing the final reporting option,
which is creating a shop floor reporting system for tracking actual material scrap
rates. The exact reporting method used will depend on the level of reporting detail
needed, as well as the accuracy of a company’s production database.
Cost: Installation time:

9–11 REVISE TRADITIONAL COST ACCOUNTING REPORTS

Though many of the other best practices advocated in this chapter involve doing
away with or replacing the existing set of cost accounting reports, there are
instances in which they can be modified sufficiently to still be of great use. This
section deals with a number of small changes that can greatly enhance these
reports. Though it would be best to install all of these upgrades, even using just
one or two of them would bring about an incremental improvement in costing
information. The changes are as follows:

• Assemble products into reporting groups. Too often, a cost report presents a
list of hundreds of products, sorted by product number. Though there may be