Management Accounting EUROCELL ACCOUNTING REPORT By Name of Author The Name of Class Name of Professor The Name of School The City and State School is Located Date 1 Management Accounting 2 Abstract Eurocell’s profit for the half year ending 30 June 2018 indicates a decrease in the gross margin profit by about 3%, and there is an inventory build-up within the manufacturing process. This report proposes different management systems that can be applied to change the current state. The report further considers different trends in management accounting that include the Program Evaluation and Review Technique, Six Sigma, Total Quality Management, Theory of Constraints and Just in Time. Based on the trends, the report suggests further study to determine the cause of the problems, and the development of a suitable Revaluation Program of the business processes. Management Accounting 3 EUROCELL PLC MANAGEMENT REPORT According to Hansen (2011, p. 108), in the modern world, management accounting in organizations entails more than just reporting the score to managers. He adds that alternative ones are mainly replacing the usual cost accounting methods, this after the downfall of Western Manufacturing and Management Accounting Relevance Crisis to modern business. Therefore, the role of management accounting in organizations today has moved from just reporting the score to seeking to impact the score by applying methods and theoretical approaches that will improve the business processes. Consequently, it is crucial for managers to understand the use and effectiveness of modern accounting approaches to the traditional ones (Granlund 2011, pp. 3-19). Undeniably, the majority of modern accounting methods focus on specific uses within the industry, and each is unique to organizations in improving the business process. This report proposes five different approaches to Eurocell’s management accounting process. The methods are the Theory of Constraints and Throughput Accounting, Six Sigma, Total Quality Management, Just in Time Inventory Management and the Program Evaluation and Review Technique framework. Additionally, the paper summarizes the key attributes of these procedures and their pros and cons with particular attention to their efficiency in different practical situations. Theory of Constraints and Throughput Accounting TOC states that in the modern world, the traditional variable costs of Cost Accounting apply with fewer rigors (Naor, Bernardes, and Coman 2013, pp. 542-54). Historically, labor was Management Accounting 4 regarded as a variable cost. Employees would work to the management’s desire. The demand for production determined dismissals. Today this is not the case as most legislative changes dictate that the workforces in organizations are a fixed cost. TOC states that even though the workforce still evaluates modern managers, such effects can lead to hasty decisions that may harm the company rather than help improve production (Naor, Bernardes, and Coman 2013, pp. 542-54). The main reason for TOC and TA is that organizations have unique goals that can be influenced by management decisions. According to Haastrup, Hansen, Ebbesen, and Mouritsen (2012), for a standardized assumption of a profit orientated firm as the maximization of the owner’s wealth, then the ‘goal unit’ will be ‘throughput contribution’ which works as the ‘total contribution’ marginal costing. Throughput contribution is defined in TOC as Sales, a less total variable cost that represents the cost of raw materials. This is described in the context of Investment and Operating Expense. Investment refers to liquidated money stored in the system regarding inventory, continuing works, machinery, and buildings. Operating Expense is the money used by the system on creating organizational goals, excluding the cost of raw materials (Şimşit, Günay, and Vayvay, 2014, pp. 930-36). Determining production and service costs allows the processes to be evaluated regarding the number of optimization questions. Eurocell needs to work on ways of increasing throughput (TC) and decreasing both Investments and Operating Expense. If determined, they will have a positive impact on the company’s Net Profit, Return on Investment, Productivity and Investment. This way, it can be declared that throughput contribution maximization is critical to the maximization of all main performance signs. Eurocell is recommended to aim to increase TC by improving the different aspects of the production processes. Management Accounting 5 Just In Time (JIT) JIT Inventory Management represents a set of ‘Lean’ manufacturing methods that stem from the Japanese Approach to management accounting (Junior, and Godinho Filho 2010, p. 13). Specifically, most modern JIT management systems are based on the Kanban system of Inventory management (García-Alcaraz, and Maldonado-Macías 2016). JIT depends on the market pull rather than the push to meet production targets and states that investment in inventory is wasteful for companies (Bortolotti, Danese, and Romano 2013 p. 1117). JIT has been widely embraced in different production companies that have adopted ‘Lean’ technology. Eurocell should too and move to jointly invest with its suppliers in productive partnerships and analyze its supply chain to prevent a total collapse of the production system. This is important since the process has no room for errors. If demand is poorly predicted and is higher than the actual, then the company stands to run out of raw materials used for production prompting a possible loss of customers. If lower than predicted the company would lack the ability to maintain its inventory. Suffices to say, JIT demands critical external and internal analysis of processes before implementation. Six Sigma Constantly improving service delivery is an important capacity for Eurocell, whether it’s by increasing effectiveness, or fixing problems in service delivery. An approach that Eurocell can use to better service delivery is Lean Six Sigma. It entails a mix of “Lean” and “Six Sigma” which are two different management approaches. Six Sigma was developed in 1986 by Motorola as a quality-control program that stresses on improving cycle-time and reducing manufacturing Management Accounting 6 defects below 3.4 per million (Barone, and Franco 2012 pp. 1-21). Today, it has transformed into a largely business-oriented management theorem that focuses on meeting customer needs, enhancing their retention, and improving and sustaining business products and services (Barone, and Franco 2012 pp. 1-21). Lean Six Sigma entails ways of improving service delivery using a controlled, projectbased system. It applies an orderly five step abbreviated as DMAIC standing for Define (developing client value definition and problem statement); Measure (process mapping and data collection); Analyze (identify problems and significant waste); Improve (determine ways of eradicating waste and adding value); and Control (create implementation and chain reaction). Although the steps are crucial to the approach, Eurocell can apply different tools to realize them, indicating considerable flexibility in its approach. See diagram below. Management Accounting 7 Six Sigma represents a theory that aims at statistical improvements to a business process (Barone, and Franco 2012 pp. 1-21). It promotes qualitative success measurements over qualitative markers. In this way, some of the major users of Six Sigma include financial analysts and project managers who mostly use statistics to achieve improved business functionality. As a statistical benchmark, Six Sigma tries to explain different business designs. Furthermore, as a training and certification program, Six Sigma teaches the main concepts of how users can acquire its belt levels. Finally, as a philosophy, it endorses the notion that all business processes are measurable. Six Sigma represents a quality management approach used to help companies’ better present processes, products or services by identifying and removing flaws (Cima et al. 2011, p. Management Accounting 8 83). The objective is to streamline quality control in manufacturing and business processes to reduce variance levels to zero. It is specially designed to help big companies with quality management. Eurocell should apply Six Sigma to detect and discard any flaws that are causing quality variations by outlining an order of procedures around a specific target. This will help the company gather useful data and statistics to help objectively detect errors and flaws that will affect quality. Importantly, by using six sigma, Eurocell’s business goals will be achieved allowing the company to define its objectives around specific industry needs. Total Quality Management (TQM) Total Quality Management refers to the constant process of identifying and decreasing or removing manufacturing errors, organizing supply chain management, boosting customer satisfaction, and guarantying that employees receive continuous training (Hoang, Igel, and Laosirihongthong 2010, p. 931). It aims to hold all everyone involved in the production process responsible for the general quality of the final product or service. TQM is always structured to different organizational management. Eurocell should apply TQM to boost the variety of its outputs, goods, and services, through the constant advancement of its internal practices. Hoang et al (p. 931) contend that TQM is customer-focused and strives for constant advancement of business operations. It aims to ensure that each staff member works towards common organizational goals of improving product and service quality, and enhancing placed production procedures. Special attention is paid on factual decision making, by applying performance metrics to study organization progress. Further, the approach encourages high organizational communication levels, to maintain employee involvement and morale. Management Accounting 9 TQM has its roots from the manufacturing sector thus placing Eurocell exactly in the right place. The company can confidently apply its principles with focus on long-term organization change over short-term goals. If properly applied, TQM will give Eurocell a cohesive vision for systemic change. Eurocell can apply the approach to all of its departments to help ensure all staff are working to achieve company objectives, thus improving the operation of each department. Program Evaluation and Review Technique (PERT) PERT refers to a model of composite procedures that happen to facilitate a specific result (Aziz pp. 81-83). The PERT model deals with time in different ways providing both optimistic and pessimistic times for the resolution of a process. PERT allows managers the liberty of viewing projects, tasks or processes in ways that can help in maximizing the effectiveness of such activities regarding some variables. Hazir (2015 p. 808) argues that PERT application entails important investments in time and proficiency and therefore can affect activity costs, which must be compared with the benefits such analysis brings to the process redesign. Eurocell should use PERT to apply ‘Lean’ production methods as it facilitates the mapping of existing processes to identify ‘slackness’ in the system. Also, the company should be keen on PERT’s complexity as it can be unfavorable regarding the time consumed and the risk of errors in the model having incidental effects to any new or redesigned process. Conclusions Management Accounting 10 In conclusion, all the five managerial trends discussed in the paper are perfect for managers in decision making. They allow managers the liberty of continually monitoring results, therefore, making significant production or services changes when needed to improve company performance. Eurocell’s problems indicate both dwindling profits and returns on investment and poor inventory management. Subsequently, it is crucial to determine their causes before any change in management decisions are made. For instance, if a fall in demand causes the decrease in profits, a JIT change and business attendant redesign along ‘Lean’ philosophy may be hugely important as it allows tight inventory control thus enabling an effective response to market demand. Profits would be expected to recover by removing overproduction and inventory as wastes to the business. Management Accounting 11 References Aziz, R.F., 2014. RPERT: Repetitive-projects evaluation and review technique. Alexandria Engineering Journal, 53(1), pp.81-93. Barone, S. and Franco, E.L., 2012. Six Sigma methodology. Statistical and Managerial Techniques for Six Sigma Methodology: Theory and Application, pp.1-21. Bortolotti, T., Danese, P. and Romano, P., 2013. 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