Performance measures and JIT: U.S. companies are revamping traditional cost systems

Article Abstract:

The implementation of just-in-time (JIT) manufacturing systems necessitates the overhaul of traditional cost accounting systems. Traditional cost accounting systems, because of their emphasis on the efficiency of labor, do not adequately measure the performance of JIT systems. JIT systems are successful because they reduce inventory and streamline the production process, performance that is not reflected by traditional computations of efficiency. JIT systems allow costs that have traditionally been classified as indirect to be directly tracked, allows the elimination of activities that do not add value, reduces the emphasis on variances of individual cost elements, and reduces the need for detailed reporting of material and labor. Some firms, such as AT&T Microelectronics' New River Valley Works (Radford, VA) plant, implement parallel systems to collect data and measure production performance.

Just in time inventory systems, Just in time systems, AT&T Corp. AT&T Microelectronics Div.

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Product costing at Caterpillar

Article Abstract:

Caterpillar Inc uses three different types of costing: standard costing, a bookkeeping activity for valuing its inventory for financial reporting reasons; operational controls, for tracking and managing the costs of operations; and product costing for long-term planning decisions. Operational controls and product costing are both cost management techniques. All three costing systems are linked through a common data base. Certain costs, such as direct materials, labor, and manufacturing-related overhead, are included in product cost pools, while some costs are excluded, including R&D costs, distribution costs for replacement parts, and general, administrative, and marketing costs. Product cost drivers are segmented into three activity pools, logistics, manufacturing, and assembly. Many general overhead costs are specifically allocated to products.

Caterpillar Inc.

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