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Hybrid manufacturing accounting in mixed process environments : A methodology and a case study

Myrelid, Andreas LU and Olhager, Jan LU (2019) In International Journal of Production Economics 210. p.137-144
Abstract

When manufacturing firms are deciding which products to produce, it is of utmost importance that they correctly allocate costs to products. It is common practice for manufacturers to use a single model for cost allocation and management accounting and to apply it to all products and production resources. Since most organisations have different types of production processes within their operations, the selection of one cost allocation model can lead to incorrect cost allocation and cost uncertainty. Newer manufacturing accounting approaches, such as lean accounting and throughput accounting, have been developed for specific manufacturing situations and are ill suited for mixed and complex process environments. We therefore study the... (More)

When manufacturing firms are deciding which products to produce, it is of utmost importance that they correctly allocate costs to products. It is common practice for manufacturers to use a single model for cost allocation and management accounting and to apply it to all products and production resources. Since most organisations have different types of production processes within their operations, the selection of one cost allocation model can lead to incorrect cost allocation and cost uncertainty. Newer manufacturing accounting approaches, such as lean accounting and throughput accounting, have been developed for specific manufacturing situations and are ill suited for mixed and complex process environments. We therefore study the problem of how to establish correct cost allocation for products produced by a manufacturer with a variety of production process types. We compare traditional accounting, throughput accounting, and lean accounting using mathematical modelling to derive analytical expressions for cost allocation using these principles. We develop a hybrid manufacturing accounting approach — a methodology for combining accounting approaches in a mixed-process environment. We illustrate the usefulness of this methodology in a case study of a large firm characterised by high-tech complex manufacturing in multiple production units (job shops, flow shops, and line processes). We apply our hybrid approach as well as traditional accounting, lean accounting, and throughput accounting to three products of different complexity and analyse the causes for deviations between approaches.

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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Case study, Lean accounting, Lean production, Theory of constraints, Throughput accounting
in
International Journal of Production Economics
volume
210
pages
8 pages
publisher
Elsevier
external identifiers
  • scopus:85060959658
ISSN
0925-5273
DOI
10.1016/j.ijpe.2019.01.024
language
English
LU publication?
yes
id
192b8776-a0ef-438b-9412-0e819568e2ca
date added to LUP
2019-02-11 11:22:48
date last changed
2019-11-25 09:27:29
@article{192b8776-a0ef-438b-9412-0e819568e2ca,
  abstract     = {<p>When manufacturing firms are deciding which products to produce, it is of utmost importance that they correctly allocate costs to products. It is common practice for manufacturers to use a single model for cost allocation and management accounting and to apply it to all products and production resources. Since most organisations have different types of production processes within their operations, the selection of one cost allocation model can lead to incorrect cost allocation and cost uncertainty. Newer manufacturing accounting approaches, such as lean accounting and throughput accounting, have been developed for specific manufacturing situations and are ill suited for mixed and complex process environments. We therefore study the problem of how to establish correct cost allocation for products produced by a manufacturer with a variety of production process types. We compare traditional accounting, throughput accounting, and lean accounting using mathematical modelling to derive analytical expressions for cost allocation using these principles. We develop a hybrid manufacturing accounting approach — a methodology for combining accounting approaches in a mixed-process environment. We illustrate the usefulness of this methodology in a case study of a large firm characterised by high-tech complex manufacturing in multiple production units (job shops, flow shops, and line processes). We apply our hybrid approach as well as traditional accounting, lean accounting, and throughput accounting to three products of different complexity and analyse the causes for deviations between approaches.</p>},
  author       = {Myrelid, Andreas and Olhager, Jan},
  issn         = {0925-5273},
  language     = {eng},
  pages        = {137--144},
  publisher    = {Elsevier},
  series       = {International Journal of Production Economics},
  title        = {Hybrid manufacturing accounting in mixed process environments : A methodology and a case study},
  url          = {http://dx.doi.org/10.1016/j.ijpe.2019.01.024},
  doi          = {10.1016/j.ijpe.2019.01.024},
  volume       = {210},
  year         = {2019},
}