Manufacturing Efficiency Ratio Accounting Help

The primary purpose of the manufacturing efficiency ratio is to highlight the percentage of time spent in non-value-added activities. The optimal efficiency ratio is ‘which indicates that 110 time is being spent 00 non-value-added activities, In practice, however, this ratio is always considerably less than 100%. But in many cases, this ratio should.provide managers with a wake-up call. Companies that have not made concerted efforts to improve efficiency sometimes have manufacturing efficiency ratios less than · 10%. Improvements inefficiency often translate directly into cost savings for a company.

Measuring Quality Accounting systems in JIT companies measure quality, as well as costs and cycle times. One widely used measure of production quality is defects per million units produced. In some companies, defect rates have been reduced to less than one .defective part per million units of production. Other measures of quality include Perl ‘ merchandise returns, number of warranty claims, customer complaints, and the results of customer, satisfaction surveys. A JIT system does not. in itself, ensure quality. Rather. it establishes striving for quality as a basic goal-of the organization

A ConcludingCorriment

The principles of JIT manufacturing offer many benefits to manufacturing companies. Among the most significant are the following: I. A reduction in unit cost through increased efficiency and the reduction or elimination ‘of non-value-added activities 2, Constant improvement in product quality J. Greater challenge, variety, and responsibility for production workers 4. Reduction in the risk that not all output can be sold The most commonly cited characteristic of JIT systems-maintenance of inventories at near-zero levels-is not appropriate for all companies. If a company does not have access to highly reliable sources of supply. it should maintain reasonable inventories of materials. If the company has a lengthy cycle time, or if it cannot achieve a nearly zero defects level of production, it should consider maintaining an adequate inventory of finished goods to ensure prompt deliveries to customers. All COM pansies,however, can benefit from -the basic philosophy of the JIT approach. which is striving to eliminate inefficiency and to improve product quality.

Posted on November 23, 2015 in Costing and- the Value Chain

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