1st Edition
The Monetary Value of Time Why Traditional Accounting Systems Make Customers Wait
Although there are numerous books on alternative accounting methods, such as Lean accounting, none focus on the impact of time and how accounting practices can be modified to acknowledge the power of time. This book addresses this need.
The Monetary Value of Time: Why Traditional Accounting Systems Make Customers Wait presents a framework for assessing the value of time in terms of organizational strategy and competitive advantage. The framework presented will enable organizations to develop consistent measures and ensure that their cost accounting system isn’t motivating behaviors that add to lead time and make customers wait.
The framework outlined in this book is relevant to the managerial and cost accounting practices in today’s manufacturing environment, which is increasingly moving away from mass production to custom manufacturing. The framework is supported by high-level metrics, which are reinforced by operational metrics. This is supported by accounting data that recognize the value of time. Pricing models that incorporate the concept of time are presented.
The book provides many examples of how the use of standard costing and traditional accounting practices in a high-mix/low-volume production environment can produce contradictory or even inaccurate results that form the basis for poor decisions that may actually move your organization farther from its objectives.
The book arms readers with options for overcoming traditional barriers by applying direct costs at an item level, while applying overheads at a macro or value stream level. For example, while GAAP requires overhead application for inventory valuation, a common misconception is that overhead must be applied at an item level. In fact, overhead can be absorbed by one journal entry.
Demonstrating the linkages between time-based accounting data and meaningful business metrics that drive bottom line results, the book presents methods and metrics that have been successfully applied by the author in manufacturing environments.
Introduction
Net Present Value: Just the Tip of the Iceberg
Velocity Improves Productivity and Working Capital
Measuring Lead Time
Measuring Velocity
Case Study: Velocity Impact on Results
Product Cost
The End and the Means: Why Do We Cost Products?
Absorption versus Variable Costing
Standard Cost
Activity-Based Costing: Is It Really as Easy as ABC?
Lean Accounting and Value Streams
Theory of Constraints and Throughput Accounting
Time-Based Accounting (TBA)
Absorbing Costs on a Macro Level Eliminates Allocations
What Does GAAP Have to Do with It?
What GAAP really requires (and it’s not standard cost)
Variation, or Stuff Happens
Variation
Fallacy of Scheduling Models in Enterprise Resource Planning
Mathematics Can Provide Useful Insights
Modeling Your Value Stream
Labor: Direct or Indirect? Cross-Trained or Specialized?
Simplified Time-Based Accounting
Make or Buy Decisions
Cell Contribution
Sample Contribution Financial Statement Presentation
Incremental Contribution
Pricing Strategies under High Mix/Low Volume
Why Gross Profit Is a Poor Predictor of Profit Contribution?
Why Margins Are Poor Predictors of Results?
Contribution Pricing?
Setup Cost, Batch Sizes, and Volume Discounts
Is Inventory a Liability or an Asset?
More on Simplified Time-Based Accounting
Stop Absorbing Overhead and Eliminate Standard Cost Variance Reporting
Feedback Loops
Replace Variance Analysis with Improvement Activities
Simplify Bills of Material
Simplify Material
Simplify Labor
Simplify Overhead
Sample Inventory Entries
Time-Based Metrics
What Is Wrong with Utilization?
What Is Wrong with Efficiency?
How about Overall Equipment Effectiveness (OEE)?
Metrics for Time-Based Systems
Time-Based Cost Justifications
Spare Capacity Planning for Equipment
Spare Capacity Planning for People
Time-Based Justification Template
Time-Based Justification Examples
A Road Map for Implementing Time-Based Accounting
Making Customers Wait
References
Index
Biography
Joyce I. Warnacut has over 30 years of experience in manufacturing firms serving as controller, CFO, and vice president. Warnacut is a graduate of Indiana University with a degree in accounting. She completed the requirements for her license as a certified public accountant in Wisconsin in 1983. Additionally, Warnacut completed the requirements for the APICS (The Association for Operations Management) certificate in production and inventory management in 1990. More recently, Warnacut attained the leadership level of certification in QRM (Quick Response Manufacturing) as awarded by Tempus Institute. Warnacut currently serves as Director of Finance for Germanna Community College in Locust Grove, Virginia.
