The difference of Financial Accounting and Managerial Accounting
The financial statements produced by the external accounting department for Claire’s Antiques is used by the NASDAQ and by the shareholders so that to determine and make informed investment decision by the shareholders by reviewing the financial statement Audited by independent auditors and in accordance with Accounting standards and General Accounting Practices. In other words it is not prepared for the internal management purposes of planning and control. The financial statement is not timely and it is based on historical financial data and financial transactions and not relevant for making financial decisions to improve financial performance and to plan
and review activities to improve operational performance by identifying weaknesses in internal processes, organization, level of activity product mix and cost control practices like budgeting in an organization so that to allocate resources which will enhance productivity and efficiency as well as innovate new products and improve efficiency of the organization on a continuous basis. As the financial statement is not relevant because it is not timely and it is based on accounting concepts which is not useful for making internal financial and operational decisions. As well it doses not tell about the individual product line profitability and the cost behavior of different expenses are not known from the financial statement. That is the format of the financial statement is not useful for
Internal management in terms of planning and control purposes. This may be the reason that the Vice President of Operations is not using the financial statements and disclosures.
Recommendation 1 Page: 2
As management of Claire’s Antique is considering Just in Time inventory management system it must change the costing system to be a process costing system than product costing system and each product it must define the processes involved in the three products and must train the operators of the processes to be an inspector of inventory and change the inventory management system from a central stores to production line to that of material requirements needed for the processes for the next production level to minimize inventory levels. The top management also have to encourage team based management system to identify weaknesses in the system to improve efficiency of the processes involved in the three products on a continuous basis from a functional organization and invest in training of team members to handle multiple tasks to keep the production flow stable. It must also establish procedures and processes to determine suppliers who can deliver materials on time and in lot sizes and specify quality requirement and instill the suppliers to be quality conscious by having regular meeting to impart knowledge of Just in Time Inventory management system, which will benefit suppliers as well as the company. It must also establish a management Accounting system and reporting on a regular basis for the supervisors to enable them to make decisions regarding make or buy decisions and to make decisions regarding production planning and scheduling and reduce set up costs which will enhance productivity and reduce cost and increase profit margin and improve product quality as well to innovate new products in the long term on a continuous basis.
Recommendation 2 Page: 3
Claire’s Antique management also can adopt a standard costing system on a product line basis and adopt an activity costing system to allocate overheads which is more accurate reflection of product costs so that it can determine the product mix which maximizes the profit margin for the company and compare actual results with budgeted levels of activity on a monthly basis to prepare management accounting reports on product line basis and identify negative variances and identify the causes of these variances and allocate resources to rectify these negative variances so that it can improve the production efficiency and reduce weaknesses in the cost structure of the company and has a system of cost control in the organization. It also helps to review its sales budget and also other budgets closer to the actual level of activity and there by reducing the cost of lost sales and excessive inventory levels in the there products. In addition it must review its purchasing policy as a result of developing long-term relationship with reputable suppliers to implement Just in time inventory management system and must train managers and operators to have quality assurance system in all processes of the product line and reward then appropriately and instill a quality conscious organizational culture in the company. Training of managers and operators is vital for the success of Just in Time inventory management system because Just in time management system has some considerable resistance from staff and management must overcome this to be successfully implemented. Its inventory control and management system and procedures also must be reviewed to be compatible with Just-in Time inventory management system than before its implementation.
Arkansas State University. Chapter 12 Cost-volume-Profit relationship. Retrieved 14 January 2007. from Arkansas State University The Center for Learning Technologies
Ruth W. Epps.(1995). Just-in-Time Inventory Management: Implementation of a Successful Program.[Electronic Version] Review of Business, 17- 1.
(Note [Electronic Version] Web site address: Ruth W. Epps http://www.questia.com/PM.qst?a=o&d=5000378688)