"Cost variances are useless to me. I don’t want to ever have to look at a cost variance, monthly or weekly. Daily, I look at sales dollars, bookings, and on-time delivery (OTD)—the percent of orders on time. Weekly, I look at a variety of quality reports including the outgoing quality control report on items passing the final test before shipment to the customer, in-process quality, and yields. Yield is a good surrogate for cost and quality. Monthly, I do look at the financial reports. I look closely at my fixed expenses and compare these to the budgets, especially on discretionary items like travel and maintenance. I also watch the headcount.

But the financial systems still don’t tell me where I am wasting money. I expect that if I make operating improvements, costs should go down, but I don’t worry about the linkage too much. The organizational dynamics make it difficult to link cause and effect precisely."

Comment on this production manager’s assessment of his limited use for financial and cost summaries of performance. For what purposes, if any, are cost and financial information helpful to operating people? How should the management accountant determine the appropriate blend between financial and non-financial information for operating people?

Answer rating: 100% (QA)

The manager looks regularly for quality metrics and returns for input on the results of his department Here he thinks that knowledge about conventiona... View the full answer