Customer profitability: as critical as product profitability

Article Abstract:

Companies must assign revenues, expenses, assets, and liabilities to their customers in order to ascertain their profitability to the firm. It is as critical to know the profitability of each customer, market, and distribution channel as it is to know product profitability. Advanced systems for costing products compare costs to a product's revenue stream in order to identify ways to eliminate the product's non-value-added expenses. However, strategic product life cycles and customer issues must be considered before a product can be dropped because a large high-profit customer may be a purchaser of a product sold below manufacturing cost. Thus, the profitability of customers must be ascertained to ensure good customer relationships that ensure the firm's overall profitability. A customer profitability analysis assigns costs and revenues to the customers that cause them. First, costs are assigned to products; customers who buy high-cost products are charged the cost against their mix. Customers are assigned expenses and assets according to the marketing and sales process, resulting in a cost being associated with the customer.

Methods, Analysis, Customer relations

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Operating controls in the new manufacturing environment

Article Abstract:

Operating variables such as built-in overhead and swollen inventories diminish in significance as automation of manufacturing operations increases and labor input decreases. Accountants have not kept up with these changes. Obsolete cost accounting systems are still in use. Traditional measures of manufacturing performance are still in place. Managerial accountants are not typically or closely involved with operations. To remedy this, the managerial accountant must go to the production floor and observe operations. Increasingly, operation's performance is gauged by quality of product and efficiency of delivery systems. Similarly, low inventories, low material costs, and minimal scrap have become determinants of performance and profitability. Emphasis on equipment and machine maintenance is paramount in an automated environment. Hardware is the new 'employee' and at the same time is a fixed asset.

Accounting, Quality management, Quality control, Products, Control, Inventory control

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Cost accounting in the new manufacturing environment

Article Abstract:

New cost accounting systems must develop to meet the demands of a changed manufacturing environment in which competition and profitability pressures have increased. Classical cost accounting models that focus on accepted values for inventories rather than cost control or product cost determination are seriously deficient. Demand for higher quality products is increasing the importance of cost accounting's ability to provide data on costs for scrap, rework, product warranties, and field service. New cost accounting systems will reflect not only the need for higher product quality, but also process reliability, reduced inventory levels, greater product variety, and increased use of automation and information technology. Two basic systems will develop: one for cost control at the source and on a real-time basis, and the other for product cost determination and executive decision-making.

Manufacturing industry, Manufacturing industries, Innovations

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