MANAGEMENT DYNAMICS Merging Constraints Accounting to Drive Improvement phần 10.pdf (kỹ thuật PR)

290 131 Materials (GAAP Earnings) 910 Payroll Suspense 220 Liability for POOGI Bonus 320 Retained Earnings 310 Common Stock 161 Sources of Future Improvement 160 Investment for Improvement 250 Long-term Debt 210 Vouchers Payable 137 Materials in Finished Goods 590 Variable Cost Sales 395 GAAP Reconciliation 790 POOGI Bonus Expense (Various Sources) 910 Other Revenue and Expense 139 Allowance to Restate Inventory at Absorption Cost 650 Operational Expense (OE) 136 Variable Cost in Process Cost Accounting Flows in Constraints Accounting System 110 Cash in Bank Exhibit A.4 XXX (Throughput) Suspense Expense Revenue Equity Liability Asset Key 490 Adjustment to Restate Sales at Cash 120 Accounts Receivable 410 Sales (Performance Profit) 390 Earnings Summary Constraints Accounting Similarities and Departures 291 395 GAAP Reconciliation 490 Adjustment to Restate Sales at Cash 590 Variable Cost of Sales 650 Operational Expense 790 POOGI Bonus Expense 910 Other Revenue and Expense These accounts are shown in Exhibit A.4 and are discussed in the following paragraphs. Resource Acquisition The positive control of expenditures provided by the voucher system remains in the constraints accounting system. Expenditures are still vouched and traced to their point of incurrence responsibility. Even though there is greater ﬂexibility and room for managerial judgment within the limits of the existing budget authorizations, managers must be prudent in their expenditures. The Vouchers Payable account operates in exactly the same manner that it does in the GAAP-based system, controlling all cash disbursements. Although the acquisition of materials, personnel, and other contractual services are accounted for in a manner similar to the GAAP system, the Cost of Sales line contains only the variable costs of production. The Payroll Suspense account is still used but with a single destination (Operational Expense). Note the ﬁrst three closing entries (dotted lines) in the earnings summary, the credit from Sales and the debit from Variable Cost of Sales, when adjusted to Restate Sales at a Cash amount, provide a transparent throughput amount. The treatment of long-term assets is different if either the direct write-off method or the payback allocation method is used. If the direct write-off method were used, then the acquisition of long-term assets would follow a path similar to other contractual services. Exhibit A.4 assumes that the payback allocation method is used. Expenditures representing speciﬁcally approved investments for improvement are vouched in the conventional manner and charged to the Investment for Improvement account. Of course, it is still necessary to maintain a record of, and accountability for, plant and equipment owned by the organization. Constraints Accounting Cost Distributions Materials used, whether drawn from the Raw Materials Inventory or acquired speciﬁcally for a particular job, result in the expenditure of funds that are variable with the production level. These are assigned to the individual job or 292 Accounting System Structure product and are part of the throughput calculation when the goods are sold. There is an Allowance to Restate the Product Inventory at Absorption Cost. In keeping with the philosophy of constraint management, conversion costs (direct labor and overhead) are not associated with speciﬁc orders or units of product produced. Instead, all personnel services and other contractual charges are assigned directly to Operational Expense. Even though there is only one destination for the personnel costs, the Payroll Suspense account is still used to ensure that the dictates of a subsidiary cost assignment system do not interfere with the important task of paying employees promptly. Reconciling Items A reconciling adjustment between the Constraints Accounting Performance Proﬁt and the GAAP earnings transfer to Retained Earnings will be needed whenever the constraints accounting treatment of a revenue or cost item is different from the GAAP treatment. The closing entry transferring the balance of the Operational Expense account to the Earnings Summary is shown as a dotted line because it is the larger of the actual or budgeted OE for the purpose of calculating the Performance Proﬁt. If the budgeted OE is greater than the actual OE, then the difference is a GAAP Reconciliation item. It will be necessary to associate some conversion cost to the product inventories to comply with GAAP for external reporting. If the organization has discontinued collecting conversion costs at the product level and has resisted the temptation to collect data regarding processing times, then it will need to establish new allocation bases to effect the association. Work-in-process may be valued using one-quarter of the production rope length.37 For example, if the rope (production cycle time allowed) at the end of the period were 10 working days and there are 200 working days in the year, the rope would represent 5% (10/200 = 0.05) of the manufacturing time available. One-quarter of (0.05/4 = 0.0125) of the manufacturing portion of OE would be assigned to the Allowance to Restate Inventory at Absorption Cost for work-in-process. The remaining balance of OE is associated with ﬁnished goods and the cost of sales. The ratio of the Materials in Finished Goods to the remaining OE balance may be used to allocate the ﬁnished goods portion of OE to the Allowance to Restate Inventory at Absorption Cost. The balance of the allowance account is added to the materials cost in inventory to arrive at an overall GAAP inventory valuation. If inventories increase, the effect will be to increase GAAP earnings by the amount of OE added to the allowance account. An organization will likely want to accrue its receivables in the same manner that it does in a GAAP system in order to maintain positive con- Constraints Accounting Similarities and Departures 293 trol of amounts owed to it. The accrued amount may be converted to cash received from sales by adding (or deducting) the decrease (or increase) in Accounts Receivable from Sales during the period. The account, Adjustment to Restate Sales at Cash, serves this purpose. The receivables adjustment is closed to the GAAP Reconciliation. Constraints Accounting Departures Constraints accounting departs from conventional GAAP reporting in the same manner as direct costing does. Therefore, the conventional direct costing GAAP inventory adjustments would apply equally. POOGI Bonus The POOGI Bonus Pool is a liability to be paid in accordance with the provisions of the POOGI Bonus plan. Since the exact amount of the payment in a given month is not known until the current month’s addition (or reduction) to the pool is known, the payment cannot be vouched until it is ready to be paid. Therefore, a current liability account will be established to hold the liability. This account, which we will call Liability for POOGI Bonus, could be either a general ledger account or a subsidiary ledger account under Wages and Salaries Payable. The POOGI Bonus Expense is an Other (extraordinary) Variation and is reported as shown in Chapter 4 of this text. It is not included as part of operational expense (OE), and it is not deducted in the computation of Performance Proﬁt.38 Assume the results for a POOGI Bonus plan that started in October 20X1 were as shown in Exhibit A.5. This exhibit shows that, in the ﬁrst month of the plan (October 20X1), the wage and salary base is $300,000. Performance Proﬁt increased by $60,000 over October 20X0 (the comparison month from a year earlier). Since the POOGI Bonus proportion is 50%, a POOGI Bonus amount of $30,000 ( = 50% of $60,000 increase in Performance Proﬁt) is shown in Exhibit A.3 as an addition to the bonus pool at the end of October. At the end of 12 months, the total of the differences for each month will equal the total difference in the 12-month amounts. In the second month, November 20X1, there was actually deterioration in performance relative to the year earlier month. Performance Proﬁt is $20,000 less than it was for November 20X0, which is reﬂected in the addition to the bonus pool of a negative $10,000. This type of situation is common when organizations implement TOC applications such as drum-buffer-rope. Production lead time is reduced, and some of the backlog of order is shipped, pulling orders forward. To the extent that the increase in orders shipped came from the backlog rather than an increase 294 Accounting System Structure POOGI Bonus Pool and Base Exhibit A.5 (A) (B) C-1 / 1 2 (C) (D) (E) (F) (G) (Total Gross Wages and Month 20X1 POOGI Bonus payments vouched During the month ($) Sep Oct Nov Dec 20X2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Salaries for last 12 D -1 – B + C End of month Addition to POOGI Bonus Pool ($) End of month POOGI Bonus Pool balance ($) months or since plan Gross Wages and Salaries (excluding POOGI Bonus) ($) D/ F inception) POOGI Bonus Wage and Salary Base ($) POOGI % 0 0 2,500 1,458 0 30,000 -10,000 20,000 0 30,000 17,500 36,042 0300,000 300,000 300,000 0 300,000 600,000 900,000 0.0 10.0 2.9 4.0 3,003 8,789 14,092 20,764 29,234 40,059 53,959 71,873 95,017 124,972 163,752 72,429 94,158 122,405 159,127 206,865 268,925 349,603 454,484 590,829 768,078 90,725 105,467 169,107 249,172 350,813 480,705 647,510 862,474 1,140,202 1,499,666 1,965,027 1,892,000 300,000 300,000 300,000 300,000 330,000 380,000 380,000 380,000 363,334 333,333 333,333 1,200,000 1,500,000 1,800,000 2,100,000 2,430,000 2,810,000 3,190,000 3,570,000 3,933,334 3,966,667 4,000,000 8.8 11.3 13.8 16.7 19.8 23.0 27.0 31.9 38.1 49.6 47.3 in the rate of sales, the improved performance reported in October 20X1 was a timing difference, and is compensated for in a following period. Recording the gross amount of the POOGI Bonus is part of the month-end adjusting procedures. When the plan is ﬁrst established, the balance of the Liability for POOGI Bonus account is zero. The additions to the POOGI Bonus pool are credited to Liability for POOGI Bonus. The corresponding debit to POOGI Bonus Expense is an expense for the month of October 20X1, resulting in the entry (a) shown in Exhibit A.6. Since one-twelfth of the balance in the POOGI Bonus pool is being disbursed monthly, the entry to record the vouchering of the bonus payExhibit A.6 (a) 20X1 Oct 31 Recording Gross Amount of POOGI Bonus POOGI Bonus Expense Liability for POOGI Bonus To record the liability for gross amount of POOGI Bonus earned in October 2001 $30,000 $30,000 Summary Exhibit A.7 (b) 295 Vouchering POOGI Bonus 20X1 No Liability for POOGI Bonus Vouchers Payable (Payroll) $2,500 $2,500 To voucher the November POOGI Bonus payments to employees of 1/12 of the pool balance. ments on November 10, 20X1, is as shown in Exhibit A.7. Individual checks are then distributed to employees on November 15 as with any other payroll (including the various deductions). The entry to record the November 20X1 POOGI Bonus reduction is as shown in Exhibit A.8. The POOGI Bonus pool (Liability for POOGI Bonus) now has a balance of only $17,500 ( = $30,000 – $2,500 – $10,000). On December 10, 20X1, the bonus payment to employees is again vouched, and checks are distributed on December 15 in a manner similar to entry (b) in Exhibit A.5. The entry for the December payment is shown in Exhibit A.9. Entries similar to (a) and (b) are then made each month. At the end of October 20X2, the balance of the Liability for POOGI Bonus account is $1,965,027 as shown in the account illustrated in Exhibit A.10. The $1,801,275 balance on November 10, 20X2, the November addition of $90,725, and the November ending balance of $1,892,000 are shown in Chapter 4 in the main text. SUMMARY As we walk back through the passages of time, it becomes apparent that humans have has an innate need to account for their belongings and the belongings of others. Moreover, the need to measure and be measured is Exhibit A.8 Amount (b) Recording Reduction in Liability as Result of Negative Bonus 20X1 Nov 30 Liability for POOGI Bonus POOGI Bonus Expense To record the reduction in liability for negative amount of POOGI Bonus earned in November 20X1 $10,000 $10,000 296 Accounting System Structure Exhibit A.9 (d) Vouchering POOGI Bonus 20X1 Dec 10 Liability for POOGI Bonus Vouchers Payable (Payroll) $1,458 $1,458 To voucher the November POOGI Bonus payments to employees of 1/12 of the pool balance. woven into the fabric of their lives in such a manner that it weaves a web within their minds that can prove to be a catalyst of change, for good and for bad. When tracing transactions both yesterday and today, it is apparent that individuals who demonstrate an understanding of numbers are regularly considered to be more mentally agile and are frequently looked upon differently from those individuals who exhibit more artistic abilities. This impression, whether true or false, insidiously leads some people in positions of authority to abdicate their responsibility of checking the trail of numbers within an organization. Furthermore, knowing the great power of understanding that numbers can hold all too often leads some individuals to purposeful complexity, manipulations, distortions, and corruption. We must also recognize the ambiguity of some reporting ﬁnancial systems laws and regulations, that in themselves promote manipulations within an organization. Such manipulative ﬁnancial reporting systems serve as a catalyst not only in their quest to measure up to outside economical forces but also to ensure their survival. There is a superior, more humane, and ethical way for an organization to realize a dynamic, robust process of ongoing improvement. Owners of the organization can demand an operating philosophy that unleashes the power of constraints, promotes and achieves global goal Exhibit A.10 Liability for POOGI Bonus Account Liability for POOGI Bonus 20X2 Nov 10 20X2 November payment Oct 31 Balance 1,965,027 Nov 10 Balance 1,801,275 Nov 30 November Addition Nov 30 Balance 163,752 90,725 1,892,000 Notes 297 congruence, and incorporates a supporting accounting system that both motivates appropriate behavior and is transparent and ﬂuid in nature. NOTES 1 Roughly from the fourteenth through the sixteenth centuries. Richard Vangermeersch has suggested that the cost allocation concept is a nineteenth-century phenomenon. He points out that in Venice the problem was circumvented by vesting ownership of the ship itself in the city-state. Nevertheless, it is clear that by the seventeenth century ventures were being accounted for in a manner that apportioned, in one way or another, the cost of vessels between sequential undertakings. Thus the conclusion that the concept of cost allocation existed at the time of the Italian Renaissance is mine alone, and I leave it to the reader to draw his or her own conclusion. 3 Perhaps one small and easily portable book was held by the banker or merchant and another, larger, book was the responsibility of an employee at the place of business; or perhaps one book was the banker’s and one the customer’s. 4 As people saw their neighbors hoping to proﬁt from investment in East India companies, they wanted to proﬁt also—and the race was on. 5 iTulip.com. 6 H. Thomas Johnson and Robert Kaplan, Relevance Lost: The Rise and Fall of Management Accounting (Harvard Business School Press, 1987), p. 130. 7 Ibid., p. 131. 8 Ibid., p. 127. 9 Ibid., p. 126. 10 The quote is from Johnson and Kaplan, Relevance Lost, p. 128, but they attribute the idea to Robin Cooper, who is generally acknowledged as the driving force behind the popularity of the activity-based cost and activity-based management fads of the late twentieth century. 11 Ibid. 12 An additional cause reservation is one of about eight categories of legitimate reservation speciﬁed as part of the theory of constraints thinking processes. These categories of legitimate reservation provide a civilized way to disagree because they emphasize the logic and the system rather than individual personalities. The additional cause reservation says, “I see your point and I agree that the effect exists. However, I think that there is another cause that is so much more important than what you have cited that it should replace the causal relationship in your thinking.” 13 Johnson and Kaplan, Relevance Lost, p. 132. The internal quote is from Harrington Emerson. 14 C. J. McNair and Richard Vangermeersch, Total Capacity Management: Optimizing at the Operational, Tactical, and Strategic Levels (St. Lucie Press, 1998), p. 136. 15 Johnson and Kaplan, Relevance Lost, p. 135. 16 Ibid., p. 145. 17 McNair and Vangermeersch, Total Capacity Management, pp. 140–141. 18 Ibid., p. 138. 19 Ibid., p. 140. 20 Generally accepted accounting principles (GAAP) is an empty term because there was no list of such principles until about 50 years later. Then, rather than having general acceptance, the GAAP principles were dictated by either the Financial Accounting Standards Board or the Securities and Exchange Commission. At the time of this writing the regulations have become so complex 2 298 Accounting System Structure that relatively few people can comprehend the full body of GAAP or the resulting ﬁnancial statements. As a result, the public turns to the community of professional ﬁnancial analysts to interpret the GAAP statements. That even this community of ﬁnancial analysts routinely ignores the GAAP model in their interpretations is strong evidence that GAAP principles are, in fact, not generally accepted. 21 McNair and Vangermeersch, Total Capacity Management, pp. 174–187. 22 An interesting side issue that is rarely mentioned is the ethical question of whether cost plus pricing is appropriate for use when the objective is more or maximum proﬁts, rather than reasonable proﬁts. 23 In addition to cost-based pricing, some techniques for linking expenses to revenues are (1) budgeting managed costs as a percentage of sales—the notion that all costs are long-run variable, and (2) budgeting all costs as a percentage of sales. 24 Gross margin is the difference between the selling price and the GAAP product cost of a product. 25 Assets are recorded on the left-hand, or debit, side of an account page; liabilities and equity are recorded on the right-hand, or credit, side. Thus, the rule stands that debits must equal credits. 26 Closing an account involves transferring the entire balance to another account, leaving the closed account with a zero balance. The closed account is then ready to be reopened to collect and summarize data for the next ﬁscal period. 27 The assets owned include monetary amounts that others owe us, which are shown in the illustration as accounts receivable. 28 When the revenues and expenses are shown on a formal report, the report is an earnings statement. The bottom line of an earnings statement is the net earnings or proﬁt, and that is the source of the general expression, bottom-line results. 29 The key is shown in the lower right-hand corners of Exhibits A.2 and A.4. 30 The Vouchers Payable account is similar to Accounts Payable, but all cash being paid out goes through the Vouchers Payable account and there is an implication that a process is in place to vouch for the appropriateness of the expenditure. A voucher is a place in the system to collect data about the transaction, such as authority for ordering, proof of delivery, agreement on terms, and approvals for account distribution and payment. When a transaction takes place that results in a cash payment, the transaction is vouchered. 31 The Accumulated Depreciation account is a valuation, or contra-asset, account. 32 The Resources in Progress account obviously summarizes a great deal of activity. The single account shown in Exhibits A.1 and A.2 may represent a summary of an entire subsidiary ledger having detailed cost ﬂows through each department of the manufacturing plant. 33 Resources in Progress (RIP) is also known as work-in-process or work in progress (WIP inventory). 34 Sometimes direct labor is called touch labor. 35 The allocation process is discussed in Chapter 5. 36 Also known as Cost of Goods Sold. This is an expense. 37 A rope is used with a constraint management drum-buffer-rope production scheduling system. It is the period of time allowed between when an order is released to production and the scheduled delivery date. The use of one-quarter of the rope length assumes that the work-in-process is 50% complete and that, on the average, orders are completed in one-half of the production rope length. 38 The POOGI Bonus Expense will be included as part of the General Administrative Expenses on the external (GAAP) ﬁnancial statements. Glossary Account classiﬁcation, method of: A technique for classifying expenses into various categories (for routine ﬁnancial reporting purposes) based on the general characteristics of another classiﬁcation. For example, costs that are classiﬁed as raw materials might also have the derivative classiﬁcation of truly variable for constraints accounting purposes. This technique allows routine ﬁnancial reports of a specialized nature, such as constraints accounting, to be prepared automatically from the existing ﬁnancial database. Accounting identity: Assets = Liabilities + Owners Equity. Activity-based costing (ABC): A system for allocating costs to products or other cost objectives using multiple measures of inputs used. The technique is similar to traditional service department allocations except that the activity base is an input measure, known as a cost driver, rather than an output volume measure. ABC also forms the basis for activity-based management. Annual proﬁt plan: See budget. Archimedean constraint: A constraint that results in a dynamic change in system performance—either good or bad—when touched. Archimedes point: A place to focus attention in order to get powerful results. Archimedes was a Greek mathematician in the third century before the Common Era. He is probably best known for running naked down the street and shouting “Eureka!,” which was the way Greeks said “I found it!” He had discovered how to determine the weight of gold in the king’s crown. As the story goes, he was bathing and noticed that he displaced his volume in water. He was then able to determine the weight of the gold in the king’s irregularly shaped crown by determining how much water it displaced relative to an equal weight of gold of known purity. This business about the displacement of water is known as Archimedes’ principle. But Archimedes was a man of many talents and also set about to move the entire world. He said that all he would need would be a ﬁrm place to stand, a lever of sufﬁcient length, and a fulcrum against which to put the lever. That ﬁrm place to stand, which would allow the entire world to be moved, 299

MANAGEMENT DYNAMICS Merging Constraints Accounting to Drive Improvement phần 10

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