Page 194 - Accounting Best Practices

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Summary
drastically improve the types of cost information that management can use to
make costing-related decisions.
Of all these best practices, it is difficult to pick out one or two that must be
implemented before all others, due to their impact. The reason is that these best
practices are highly interrelated. For example, an activity-based costing system
provides valuable new information, but no one will see it if the new data is shoe-
horned into the same old cost accounting reports. Similarly, new costing reports
are vital but will still contain inaccurate information unless the underlying data is
improved through regular audits. Thus, it is necessary to install these best prac-
tices as a group in order to obtain the maximum impact of quality information
presented in a new and informative format.
If all of these best practices are installed, the primary impact on the organiza-
tion will be much better costing information than what was previously available
to management. However, the reports will not have an impact on the organization
unless they are acted upon. This calls for a very active role for the controller, who
must peruse the new information, devise action plans based on it, and aggres-
sively market both the reports and his or her conclusions to management on a
continuing basis. Without this proactive approach, senior managers will receive
the new reports and not realize that they are holding a powerful new tool in their
hands. Thus, the controller is the key to the rapid acceptance and use of the new
costing data that will result from the best practices advocated in this chapter.

SUMMARY

This chapter described a number of best practices that impact inventory costing.
Some involve auditing those underlying documents with the greatest impact on
profitability, such as bills of material and labor routings. Others alter or replace
existing cost reports, resulting in better visibility of costing problems. Finally,
target costing and activity-based costing systems can be installed, giving much
control over costs (in the first case) and vastly more accurate information about
costs (in the latter case). These are generally easy implementations, with the
exception of the two new costing systems, but implementing the reports will
require the approval and acceptance of those members of management who will
read them. If properly implemented, all of these changes will result in much bet-
ter knowledge of costs, which, if acted upon, can make the difference between
profits and losses.