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Manufacturers:

"Does cost accounting as taught in universities work?"

  • No. Manufacturing has changed out of sight since General Motors developed cost accounting in the 1920's
  • In response, cost accounting has not adapted effectively
  • In fact, it has taken some strategic wrong turns

"How hasn't it adapted?"

  • General Motors identified the three basic elements: Materials, Labour and Overheads
  • Labour rates were then very low - but productivity was even lower
  • Consequently, labour was the dominant element
  • So, overheads had to be related to labour
  • But now, materials are by far the dominant element

"What have been the strategic wrong turns?"

  • Computing power has been used to add detail, not insight
  • systems have become increasingly complex (for example, Activity Based Costing)
  • the distinction between cost accounting and financial analysis has been blurred
  • systems have not developed to help with the management of pricing
  • nor the systematic analysis of productivity
  • nor management of changes in the terms of trade
Our approach led a client to increase profitability six-fold
 
 

© Christopher Miller Consulting Pty Ltd