Financial Managers, It Is Important Research Paper

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The demand pulls the manufacturing processes, rather than the supply.

JIT has required a new approach to accounting, as "traditional and standard costing systems track costs as products pass from raw materials, to work in progress, to finished goods, and finally to sales" (Johnson 2004). JIT has resulted in the creation of so-called "backflush accounting' which focuses on the output of an organization and then works "backwards" when allocating costs between cost of goods sold and the cost of available inventories (Johnson 2004).

Product vs. period classification

Product costs are the relatively stable material costs that are involved in making the product, such as input materials, labor, and overhead (Product cost vs. period cost. (2010). Accounting for Management). Period costs include the more variable and less predicable costs of manufacturing such as administrative costs and marketing and sales costs.

Value chain

Value chain analysis, first popularized by Michael Porter, strives to maximize the value given to the customer so that it is greater than the cost of the activities used to obtain the good or service, while minimizing the costs incurred by the manufacturer. The primary value chain activities are inbound logistics: "the receiving and warehousing of raw materials, and their distribution to manufacturing as they are required," operations, "the processes of transforming inputs into finished products and services," outbound logistics, "the warehousing and distribution of finished goods," marketing and sales, "the identification of customer needs and the generation of sales," and service-related activities, or "the support of customers after the products and services are sold to them" (Value chain analysis, 2010, Net MBA). Reducing inbound and outbound logistics and operations costs, while maximizing quality in all these areas as well as communicating a strong message through marketing, sales, and service efforts creates value for the manufacturer and the perception of value for the customer.

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Proactively controlling costs using target costing

Target costing involves a firm setting a target cost during the production or reformulation of a product so that the item will bring a certain desired profit margin for the firm. It places pressure upon designers to engage in lean manufacturing processes and development, as the desired cost (and desired profit) is set before, rather than after the item is finished and introduced into the market.

Conversion costs

Conversion costs are the direct costs of labor plus the manufacturing overhead costs required to use that labor (Conversion cost definition, 2010, Accounting for Management)......

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