Accurate Product Costing in a JIT Environment

Abstract

Traditional accounting systems have failed to match revenues and expenses properly in today's JIT purchasing environment. An alternative approach is discussed—one that utilizes activity‐based costing, which helps accurately measure overhead costs for a basis of cost allocation. Suggestions are offered for designing and utilizing an activity‐based approach to produce true measures of product cost.

Cost Allocation for Business Process Simulation Models

“…Weaknesses in conventional business costing became apparent in the latter half of the previous century owing to advances in technology, a shift from manufacturing to services, increased product diversity, and changes in organizational structure. Consequently, indirect costs (for example, R&D, marketing, sales, customer services, financial services, and management) are often aggregated under a single heading such as 'administrative overheads' [10][11][12]13].…”

“…The consequence of this can be a reduction in indirect costs. Furthermore, indirect costs can change into direct costs, for example through the adoption of just-intime (JIT) principles [11]. In businesses where indirect costs have outgrown direct costs, it is unlikely that each overhead cost pool is even approximately homogeneous.…”