An Assignment On

Cost Accounting
(Management control system, Target pricing, Performance
management, Business Process Reengineering, Demand flow, Just
in time, Six Sigma, Theory of constrains)
Submitted to
Md. Monir Hossain
Sr. Lecturer
Department of Business Administration
Prime University

Submitted by
Name: Ayesha Akter Asa
ID: 183020101033
Batch: 49th
Department of Business Administration
Prime University
Course Title: Cost Accounting
Course Code: ACT-232

Date of Submission: 23, July 2020

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 Table of Contents:

1. Management Control System

2. Target Pricing
3. Performance Management
4. Business Process Reengineering
5. Demand Flow
6. Just In Time (JIT)
7. Six Sigma
8. Theory of Constraints

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1. MANAGEMENT CONTROL SYSTEM:

A management control system (MCS) is a system which gathers and

uses information to evaluate the performance of different organizational
resources like human, physical, financial and also the organization as a
whole in light of the organizational strategies pursued.
Management control system influences the behavior of organizational
resources to implement organizational strategies. Management control
system might be formal or informal.

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 02. Target pricing:

Target pricing is the process of estimating a competitive price in the

marketplace and applying a firm's standard profit margin to that price in
order to arrive at the maximum cost that a new product can have. A
design team then tries to create a product with the requisite features
within the pre-set cost constraint. If the team cannot complete the
product within the cost constraint, the project is terminated. By taking
this approach, a firm can assure itself of earning a reasonable profit
across its product line, without being burdened by any low-profitability
products. However, if the standard profit margin is set too high, it may
not be possible to develop very many products within the cost constraint.

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 03. Performance management (PM):

Performance management (PM) is a process of ensuring that set of

activities and outputs meets an organization's goals in an effective and
efficient manner. Performance management can focus on the
performance of an organization, a department, an employee, or the
processes in place to manage particular tasks. Performance
management standards are generally organized and disseminated by
senior leadership at an organization and by task owners, it can include
specifying tasks and outcomes of a job, providing timely feedback and
coaching, comparing employee's actual performance and behaviors
with desired performance and behaviors, instituting rewards, etc.

Strategy and Planning Graphic:

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 04. Business Process Reengineering:

Business Process Reengineering involves the radical redesign of core

business processes to achieve dramatic improvements in productivity,
cycle times and quality.
Business Process Reengineering involves the radical redesign of core
business processes to achieve dramatic improvements in productivity,
cycle times and quality. In Business Process Reengineering, companies
start with a blank sheet of paper and rethink existing processes to deliver
more value to the customer. They typically adopt a new value system
that places increased emphasis on customer needs. Companies reduce
organizational layers and eliminate unproductive activities in two key
areas. First, they redesign functional organizations into cross-functional
teams. Second, they use technology to improve data dissemination and
decision making.

How Business Process Reengineering Works:

Business Process Reengineering is a dramatic change initiative that
contains five major steps that managers should take:
1. Refocus company values on customer needs
2. Redesign core processes, often using information technology to
enable improvements
3. Reorganize a business into cross-functional teams with end-to-
end responsibility for a process
4. Rethink basic organizational and people issues
5. Improve business processes across the organization

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 05. Demand Flow Technology (DFT):

Demand Flow Technology (DFT) is a strategy for defining and

deploying business processes in a flow, driven in response to customer
demand. DFT is based on a set of applied mathematical tools that are
used to connect processes in a flow and link it to daily changes in
demand. DFT represents a scientific approach to flow manufacturing for
discrete production. It is built on principles of demand pull where
customer demand is the central signal to guide factory and office activity
in the daily operation. DFT is intended to provide an alternative to
schedule-push manufacturing which primarily uses a sales plan and
forecast to determine a production schedule.

History of DFT:
It was created by John R. Costanzia, an executive with operations
management experience at Hewlett Packard and Johnson & Johnson.
Costanzia, who was later nominated as a Nobel Laureate in Economics
for Working Capital Management, founded the John Costanzia Institute
of Technology in Englewood, CO in 1984 to provide consulting and
education services for manufacturers to implement the methodology.

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 06. Just-in-Time (JIT)?

The just-in-time (JIT) inventory system is a management strategy that

aligns raw-material orders from suppliers directly with production
schedules. Companies employ this inventory strategy to increase
efficiency and decrease waste by receiving goods only as they need them
for the production process, which reduces inventory costs. This method
requires producers to forecast demand accurately.
The JIT inventory system contrasts with just-in-case strategies, wherein
producers hold sufficient inventories to have enough products to absorb
maximum market demand.

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How Just-in-Time (JIT) Works:
One example of a JIT inventory system is a car manufacturer that
operates with low inventory levels but heavily relies on its supply chain
to deliver the parts it requires to build cars, on an as-needed basis.
Consequently, the manufacturer orders the parts required to assemble the
cars, only after an order is received.
For JIT manufacturing to succeed, companies must have steady
production, high-quality workmanship, glitch-free plant machinery, and
reliable suppliers.

Elements of Just In Time(JIT):

The Three elements are:

1. Talk Time
2. Flow Production
3. A Pull System

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Advantages of the Just-in-Time (JIT) Inventory
System:

JIT inventory systems have several advantages over traditional models.

Production runs are short, which means that manufacturers can quickly
move from one product to another. Furthermore, this method reduces
costs by minimizing warehouse needs. Companies also spend less
money on raw materials because they buy just enough resources to make
the ordered products and no more.

Disadvantages of the Just-in-Time System:

The disadvantages of JIT inventory systems involve potential

disruptions in the supply chain. If a raw materials supplier has a
breakdown and cannot deliver the goods in a timely manner, this could
conceivably stall the entire production process. A sudden unexpected
order for goods may delay the delivery of finished products to end
clients.

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 07. Six Sigma:

Six Sigma is a quality-control methodology developed in 1986 by

Motorola, Inc. The method uses a data-driven review to limit mistakes or
defects in and process. Six Sigma emphasizes cycle-time improvement
while at the same time reducing manufacturing defects to a level of no
more than 3.4 occurrences per million units or events. In other words,
the system is a method to work faster with fewer mistakes.
Six Sigma points to the fact that, mathematically, it would take a six-
standard-deviation event from the mean for an error to happen. Because
only 3.4 out of a million randomly and normally distributed, events
along a bell curve would fall outside of six-standard-deviations where
sigma stands in for "standard deviation".

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In recent years, Six Sigma has evolved into a more general business-
management philosophy, focused on meeting customer requirements,
improving customer retention, and improving and sustaining business
products and services. Six Sigma applies to all industries.

Understanding Six Sigma:

Six Sigma represents a management ideology, which focuses on

statistical improvements to a business process. It advocates for
qualitative measurements of success over qualitative markers. Therefore,
practitioners of Six Sigma are those business people who use statistics,
financial analysis, and project management to achieve improved
business functionality.
Six Sigma evolved to define numerous ideas within the business sphere
and is sometimes confusing. First, it's a statistical benchmark. A defect
is anything produced outside of consumer satisfaction. Second, it is a
training and certification program, which teaches the core principles of
Six Sigma.

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The Five Steps of Six Sigma:
True believers and practitioners in the Six Sigma method follow an
approach called DMAIC which stands for define, measure, analyze,
improve and control. It is a statistically driven methodology that
companies implement as a mental framework for business process
improvement. The ideology behind DMAIC is that a business may solve
any seemingly unsolvable problem by following the DMAIC steps.
1. A team of people, led by a Six Sigma champion, defines a faulty
process on which to focus, decided through an analysis of
company goals and requirements. This definition outlines the
problem, goals, and deliverables for the project.
2. The team measures the initial performance of the process. These
statistical measures make up a list of potential inputs, which may
cause the problem and help the team understand the process's
benchmark performance.
3. Then the team analyzes the process by isolating each input, or
potential reason for the failure, and testing it as the root of the
problem. Through analysis, the team identifies the reason for
process error.
4. From there, the team works to improve system performance.
5. Finally, the team adds controls to the process to ensure it does not
regress and become ineffective once again.

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 08. The theory of constraints (TOC):

The theory of constraints (TOC) is a management paradigm that views

any manageable system as being limited in achieving more of its goals
by a very small number of constraints. There is always at least one
constraint, and TOC uses a focusing process to identify the constraint
and restructure the rest of the organization around it. TOC adopts the
common idiom "a chain is no stronger than its weakest link". This means
that processes, organizations, etc., are vulnerable because the weakest
person or part can always damage or break them or at least adversely
affect the outcome.

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The five focusing steps:
Theory of constraints is based on the premise that the rate of goal
achievement by a goal-oriented system is limited by at least one
constraint.
The argument by reduction ad absurdum is as follows: If there was
nothing preventing a system from achieving higher throughput, its
throughput would be infinite – which is impossible in a real-life system.
Only by increasing flow through the constraint can overall throughput be
increased.

 Assuming the goal of a system has been articulated and

its measurements defined, the steps are:

1. Identify the system's constraint.

2. Decide how to exploit the system's constraint.

3. Subordinate everything else to the above decision.

4. Alleviate the system's constraint.

5. Warning! If in the previous steps a constraint has been broken, go

back to step 1, but do not allow inertia to cause a system's
constraint.

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