Accounting Case

Accounting for lean in a low volume, high Variety job shop

Calculations of machine shop Inventory: First Month of New Year ''

Concern 2 of phase I: Managing Machine Shop Capacity Without Labor Reporting

How will the company manage capacity without direct labor reporting?

The machine shop is a critical element of the production process and direct labor reporting always has been essential to the production process planning process.

Focus on simplifying financial reporting.

PackCo simply changed all labor and overhead financial fields to zero for every part number.

Direct Labor hours were maintained.

Time reporting will have to be eliminated since all machinists will be cross trained. (it wil be impossible to continue tracking labor times at the discrete part level.

PackCo determined that it was more efficient to transition the cost system of the entire machine shop all at once, rather than cell by cell.

New cost system provided management with much greater visibility into the flow material through the machine shop.

Some of the benefits are:

Inventory turn data are now more meaningful because they relate to actual material costs.

Inventory related to labor costs can be easily converted to labor hours once an overall labor cost per hour is determined. This provided a secondary check on inventory levels by monitoring the number of hours in the shop at all times.

These added steps to check the estimated inventory level are required during the initial phase of the lean journey. Work in process labor, conversion, and fixed cost in inventory will become insignificant.

Concern 3 of phase I: Determining individual part cost without standard costing

How to accurately calculate the costs of individual parts for the various decisions that are made each day at any company?

PackCo utilizes a separate variable cost file that incorporates the Lean cost information. Contains each part number and the associated raw material, labor, and conversion costs.