Response to Eve and Kelly post-
In your response posts, reflect on the advantages and disadvantages of accounting in a lean manufacturing environment, as described by Eve and Kelly (attach post). Support your responses to classmates with sound arguments, citing sources as needed.
Eve
Lean manufacturing is showing to be a great asset in improving efficiency with manufacturing companies. Some of the issues accountants face when switching to a lean manufacturing system include having to change the way the financial statements are organized as well as the fact that when first switching, companies usually will show a decreased income as the deferred labor and overhead move from the inventory account on the balance sheet to the expense section of the income statement. CPA's need to change their accounting practices in order to help companies better understand the benefits that the process brings to their operations.
In order to implement lean manufacturing, companies need to reorganize the way the factories are set up. This involves changing the floor plan from a department setup to a work cell setup. The entire processes needed to manufacture a product are done in a work cell. The machines needed are set up right next to each other, the employees are cross-trained to be able to use and manage all the machines, and the supplies are delivered on a just in time basis. This system reduces the time it takes to manufacture and ship products, which saves the company money. Machines are not sitting idle while waiting for the next batch to come over from another department which allows for more products to be manufactured. Also, this system allows for less damage to occur to the products as they don't have to be moved all over the factory to go from department to department. The entire basis of lean manufacturing is to reduce inventory to include only the parts needed for the current orders to be filled. Orders are completed in a timelier fashion allowing for more orders to be completed. The factory has more room for more work cells as the inventory supply is lowered. Changing from an inventory as assets accounting method challenges CPA's to show the companies how well they are actually doing, which is one of the downsides from switching to a lean manufacturing system. CPA's must change the way they organize the financial statements, which takes time and cannot be done overnight.
Although lean manufacturing (and lean accounting) can seem daunting to potential users, it has shown to improve the bottom line by making companies more efficient, less wasteful (of time, space, and supplies), and is the next logical step for manufacturing companies who wish to keep up with the fast changing times that technology has created.
Sources: Kroll, K. (2004, July 1). The Lowdown on Lean Accounting. Retrieved from https://www.journalofaccountancy.com/issues/2004/jul/thelowdownonleanaccounting.htm
Kelly
When deciding to make a switch to lean accounting, there are many issues that need to first be considered. One of those is that a lean manufacturing system can negatively impact bottom line profits. This is because deferred labor and overhead would be put as an additional expense on the income statement, thereby reducing profits. There is also difficulty with measuring and allocating costs and you cannot use traditional accounting systems with lean manufacturing. So an added expense to the company as a whole would be a total revamp of the accounting process which could be time consuming and costly.
Lean manufacturing however, helps reduce scrap, waste, and spoilage. It can lead to a more efficient use of resources, time, and money. Lean manufacturing helps create a shorter production cycle, decrease the amount of excess inventory, increases inventory turnover, and reduces the amount of occupied storage space. These all contribute to helping a company use resources more wisely and reduce the amount of scrap, waste, and spoilage.
While a lean manufacturing has many advantages, there are also many issues and downfalls with lean manufacturing. There can be issues with accurately pricing products and profits. This is because it is harder to allocate indirect costs correctly and to make sure all indirect costs are accounted for, especially those that are beyond the value stream. This can create a gap between estimated and actual costs.
References- The Lowdown on Lean Accounting. (2004). Retrieved January 21, 2016, from https://www.journalofaccountancy.com/issues/2004/jul/thelowdownonleanaccounting.htm