Reference no: EM13615655

The manager of a large semiconductor production departmentexpressed his disdain for the cost information he was presentlygiven:

Cost variances are useless to me. I don't want to everhave to look at a cost variance, monthly or weekly. Daily, I lookat sales dollars, bookings, and on-time delivery (OTD)-the percentof orders on time. Weekly, I look at a variety of quality reportsincluding the outgoing quality control report on items passing thefinal test before shipment to the customer, in-process quality, andyields. Yield is a good surrogate for cost and quality. Monthly, Ido look at the financial reports. I look closely at my fixedexpenses and compare these to the budgets, especially ondiscretionary items like travel and maintenance. I also watchheadcount.

But the financial systems stilldon't tell me where I am wasting money. I expect that if Imake operating improvements, costs should go down, but Idon't worry about the linkage too much. The organizationaldynamics make it difficult to link cause and effect precisely.

Required

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 helpfulto operating people? How should the management accountant determine the appropriate blend between financial and nonfinancial information for operating people?