Page 794 - Accounting Principles (A Business Perspective)

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20. Using accounting for

quality and cost management

Learning objectives
After studying this chapter, you should be able to:
• Describe why managers need good accounting information to be competitive in the new production
environment.
• Identify ways to improve quality.
• Develop measures of performance that help achieve high quality.

• Understand how the balanced scorecard helps organizations recognize and deal with opposing
responsibilities.
• Explain how just-in-time purchasing and production can reduce costs and improve quality.
• Compare and contrast accounting in just-in-time settings with accounting in traditional settings.
• Define activity-based costing and explain its benefit to companies.
• List the four steps in activity-based costing.
• Compare product costs using activity-based costing with product costs using traditional costing methods.

• Describe the strategic and behavioral advantages of activity-based management.
Importance of good accounting information
Have you ever purchased a product and found it to be defective? If so, you may have sworn to yourself that you

would never buy one of those again. By doing so, you have demonstrated why high-quality products are essential for
business success. Successful companies remain in business by seeking continual improvement in the quality of their
products. For example, Territory Ahead, a merchandising company tells its customers to please hassle them if not
completely satisfied. Nordstrom's department stores, Southwest Airlines Company, and Apple . are companies that
have built reputations based on the notion of hassle us if you are not completely satisfied.
In its plant near Nashville, Tennessee, USA, Nissan Motor Corporation places some of the previous day's
production of cars and trucks in the lobby with charts showing the number of production defects for that day.

Displaying products and reporting on performance gives workers a sense of pride in their work and an incentive to
reduce defects.
Quality and the new production environment
Attention to quality is an important feature of the new production environment. The phrase, new production

environment, refers to an environment in which company managers are concerned with (1) improving customer
service and product quality and (2) reducing costs. Both actions are necessary to stay competitive.
In the new production environment, new technology is helping managers improve quality and reduce costs.
Computer-assisted manufacturing enables managers to reduce inventories, yet respond quickly to customers'

Accounting Principles: A Business Perspective 795 A Global Text