How A Cost Accounting System Improved Efficiency And Profit
Ann Marie owns a manufacturing business which makes a high-end product. She varies her design from time to time so there are many versions of her primary design.
Ann Marie did not have a cost accounting system that would determine the cost of producing each version. So she did not know which ones were cost-effective to produce and earn her more profit and which ones were not.
She engaged her Accountant to select an appropriate cloud-based cost accounting system to tailor to her needs.
The Accountant analyzed the manufacturing process and determined the basic activities involved. The next step was to create a system which would:
- Measure how often each basic step is performed in producing a design.
- Determine the cost of each step in the manufacturing process.
- Use 1 and 2 above to determine the cost of each design.
Ann Marie enthusiastically uses her new cost accounting system to:
- Measure profits derived from the sale of each design.
- Target low-profit designs for discontinuation.
- Help determine pricing of new designs.
Benefits for the Client
The system allowed Ann Marie to measure production efficiency and thereby grow her profit and business.