Question

Financial information for continuous improvement The manager of a large semiconductor production department expressed his disdain for the cost information he was presently given:

$9k=$ Cost variances are useless to me.² 1 don't want to ever have to look at a cost variance, monthly or weekly. Daily, I look at sales dollars, bookings, and on-time delivery (OTD)—the percent of orders on time. Weekly, I look at a variety of quality reports including the outgoing quality control report on items passing the final test before shipment to the customer, in-process quality, and yields. Yield is a good surrogate for cost and quality. Monthly, I do look at the financial reports. I look closely at my fixed expenses and compare these to the budgets, especially on discretionary items like travel and maintenance. I also watch headcount.

But the financial systems still don't tell me where I am wasting money. I expect that if I make operating improvements, costs should go down, but I don't worry about the linkage too much. The organizational dynamics make it difficult to link cause and effect precisely.

Required

Comment on this production manager's assessment of his limited use for financial and cost summaries of performance. For what purposes, if any, are cost and financial friformation helpful to operating people? How should the management accountant deterrnjne the appropriate blend between financial and nonfinancial information for operating people?

Answer 1

ANSWER:-

The Management Accountant's message for cost reduction would be more convincing if industry comparisons are also given to the production manager The Management Accountant has to take care that only relevant information is sent to the production manager. The frequency of information has to be decided keeping in view the utility of very frequent data The production manager is keen on timely and actionable non financial information which are leading indicators. He perceives that financial information is of low utility value to him