Managerial Accounting – Controlling Muda in a Business

 

Q. How can each of these management tools be used to control Muda in a business?

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A. Financial ratios analysis helps to spot financial patterns that may threaten the health of your company (Americanexpress.com, 2006), overhead calculation & allocation assists with controlling expenditure and minimizing overspending, as does job and process costing.  .  CVP analysis is an examination of the relationships of prices, costs, volume, and mix of products.  It involves the separation of costs into their variable and fixed categories at the outset of the analysis (northonline, 2006).  Incremental analysis, budgeting, and standard costing all eliminate waste such as producing defective goods, as well as waste from unused creativity.

2. Which forms of Muda can each help control?  Financial ratios, overhead calculation and allocation and job and process costing assist with controlling overproduction, waste from waiting or idle time, and inefficient processes as well as producing defective goods.  Unnecessary transportation would be controlled by CVP analysis, and unnecessary inventory is controlled by budgeting

3. Are all forms of Muda reflected in a company’s accounting system? Or are some forms of Muda `off the books?` In theory, since all forms of waste impact upon the company in one way or another, and an efficient accounting system is reflective of all of this, all forms of Muda should be reflected in a company’s accounting system.  But what about unquantifiable Muda?  For example, the extra time a person takes to type because his computer is slower that day, the extra paper that could be saved by printing with a smaller font or the time taken up in a day to upgrade systems?  These would be forms of Muda which are “off the books”.
References

Americanexpress.com, (2006), “Take Your Fiscal Temperature with Financial Ratios”, retrieved 28 Sept 2006 from the website http://www133.americanexpress.com/osbn/tool/ratios/financialratio.asp