1st Edition

The Monetary Value of Time Why Traditional Accounting Systems Make Customers Wait

By Joyce I. Warnacut Copyright 2016
    180 Pages 103 B/W Illustrations
    by Productivity Press

    184 Pages 103 B/W Illustrations
    by Productivity Press

    Although there are numerous books on alternative accounting methods, such as Lean accounting, none focus on the impact of time and how accounting practices can be modified to acknowledge the power of time. This book addresses this need.

    The Monetary Value of Time: Why Traditional Accounting Systems Make Customers Wait presents a framework for assessing the value of time in terms of organizational strategy and competitive advantage. The framework presented will enable organizations to develop consistent measures and ensure that their cost accounting system isn’t motivating behaviors that add to lead time and make customers wait.

    The framework outlined in this book is relevant to the managerial and cost accounting practices in today’s manufacturing environment, which is increasingly moving away from mass production to custom manufacturing. The framework is supported by high-level metrics, which are reinforced by operational metrics. This is supported by accounting data that recognize the value of time. Pricing models that incorporate the concept of time are presented.

    The book provides many examples of how the use of standard costing and traditional accounting practices in a high-mix/low-volume production environment can produce contradictory or even inaccurate results that form the basis for poor decisions that may actually move your organization farther from its objectives.

    The book arms readers with options for overcoming traditional barriers by applying direct costs at an item level, while applying overheads at a macro or value stream level. For example, while GAAP requires overhead application for inventory valuation, a common misconception is that overhead must be applied at an item level. In fact, overhead can be absorbed by one journal entry.

    Demonstrating the linkages between time-based accounting data and meaningful business metrics that drive bottom line results, the book presents methods and metrics that have been successfully applied by the author in manufacturing environments.


    Net Present Value: Just the Tip of the Iceberg

    Velocity Improves Productivity and Working Capital
    Measuring Lead Time
    Measuring Velocity

    Case Study: Velocity Impact on Results

    Product Cost
    The End and the Means: Why Do We Cost Products?
    Absorption versus Variable Costing
    Standard Cost
    Activity-Based Costing: Is It Really as Easy as ABC?
    Lean Accounting and Value Streams
    Theory of Constraints and Throughput Accounting
    Time-Based Accounting (TBA)
    Absorbing Costs on a Macro Level Eliminates Allocations

    What Does GAAP Have to Do with It?
    What GAAP really requires (and it’s not standard cost)

    Variation, or Stuff Happens
    Fallacy of Scheduling Models in Enterprise Resource Planning
    Mathematics Can Provide Useful Insights
    Modeling Your Value Stream

    Labor: Direct or Indirect? Cross-Trained or Specialized?

    Simplified Time-Based Accounting
    Make or Buy Decisions
    Cell Contribution
    Sample Contribution Financial Statement Presentation
    Incremental Contribution

    Pricing Strategies under High Mix/Low Volume
    Why Gross Profit Is a Poor Predictor of Profit Contribution?
    Why Margins Are Poor Predictors of Results?
    Contribution Pricing?
    Setup Cost, Batch Sizes, and Volume Discounts

    Is Inventory a Liability or an Asset?

    More on Simplified Time-Based Accounting
    Stop Absorbing Overhead and Eliminate Standard Cost Variance Reporting
    Feedback Loops
    Replace Variance Analysis with Improvement Activities
    Simplify Bills of Material
    Simplify Material
    Simplify Labor
    Simplify Overhead
    Sample Inventory Entries

    Time-Based Metrics
    What Is Wrong with Utilization?
    What Is Wrong with Efficiency?
    How about Overall Equipment Effectiveness (OEE)?
    Metrics for Time-Based Systems

    Time-Based Cost Justifications
    Spare Capacity Planning for Equipment
    Spare Capacity Planning for People
    Time-Based Justification Template
    Time-Based Justification Examples

    A Road Map for Implementing Time-Based Accounting

    Making Customers Wait




    Joyce I. Warnacut has over 30 years of experience in manufacturing firms serving as controller, CFO, and vice president. Warnacut is a graduate of Indiana University with a degree in accounting. She completed the requirements for her license as a certified public accountant in Wisconsin in 1983. Additionally, Warnacut completed the requirements for the APICS (The Association for Operations Management) certificate in production and inventory management in 1990. More recently, Warnacut attained the leadership level of certification in QRM (Quick Response Manufacturing) as awarded by Tempus Institute. Warnacut currently serves as Director of Finance for Germanna Community College in Locust Grove, Virginia.