Hybrid manufacturing accounting in mixed process environments: A methodology and a case study

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TY - JOUR

T1 - Hybrid manufacturing accounting in mixed process environments

T2 - International Journal of Production Economics

AU - Myrelid, Andreas

AU - Olhager, Jan

PY - 2019

Y1 - 2019

N2 - When manufacturing firms are deciding which products to produce, it is of utmost importance that they correctly allocate costs to products. It is common practice for manufacturers to use a single model for cost allocation and management accounting and to apply it to all products and production resources. Since most organisations have different types of production processes within their operations, the selection of one cost allocation model can lead to incorrect cost allocation and cost uncertainty. Newer manufacturing accounting approaches, such as lean accounting and throughput accounting, have been developed for specific manufacturing situations and are ill suited for mixed and complex process environments. We therefore study the problem of how to establish correct cost allocation for products produced by a manufacturer with a variety of production process types. We compare traditional accounting, throughput accounting, and lean accounting using mathematical modelling to derive analytical expressions for cost allocation using these principles. We develop a hybrid manufacturing accounting approach — a methodology for combining accounting approaches in a mixed-process environment. We illustrate the usefulness of this methodology in a case study of a large firm characterised by high-tech complex manufacturing in multiple production units (job shops, flow shops, and line processes). We apply our hybrid approach as well as traditional accounting, lean accounting, and throughput accounting to three products of different complexity and analyse the causes for deviations between approaches.

AB - When manufacturing firms are deciding which products to produce, it is of utmost importance that they correctly allocate costs to products. It is common practice for manufacturers to use a single model for cost allocation and management accounting and to apply it to all products and production resources. Since most organisations have different types of production processes within their operations, the selection of one cost allocation model can lead to incorrect cost allocation and cost uncertainty. Newer manufacturing accounting approaches, such as lean accounting and throughput accounting, have been developed for specific manufacturing situations and are ill suited for mixed and complex process environments. We therefore study the problem of how to establish correct cost allocation for products produced by a manufacturer with a variety of production process types. We compare traditional accounting, throughput accounting, and lean accounting using mathematical modelling to derive analytical expressions for cost allocation using these principles. We develop a hybrid manufacturing accounting approach — a methodology for combining accounting approaches in a mixed-process environment. We illustrate the usefulness of this methodology in a case study of a large firm characterised by high-tech complex manufacturing in multiple production units (job shops, flow shops, and line processes). We apply our hybrid approach as well as traditional accounting, lean accounting, and throughput accounting to three products of different complexity and analyse the causes for deviations between approaches.

KW - Case study

KW - Lean accounting

KW - Lean production

KW - Theory of constraints

KW - Throughput accounting

U2 - 10.1016/j.ijpe.2019.01.024

DO - 10.1016/j.ijpe.2019.01.024

M3 - Article

VL - 210

SP - 137

EP - 144

JO - International Journal of Production Economics

JF - International Journal of Production Economics

SN - 0925-5273

ER -