LEBANON GASKET COMPANY Case Solution

The key assumptions made in the calculation of the net profit in the value stream are that the labor cost is taken as being fixed. In addition to this, the sum of the total salaries is divided by the quarter which shows each quarter salary of the company and this assumes that the employees get the fixed amount of salaries in each quarter.

The key assumption made is that the price per unit will be same and the costs will be same, whereas the government can change the law and the costs might be influenced by the laws of the government and any other change in the external atmosphere will also lead to change in the results produced.

Income statement using value stream
March June
Sales 4022754 4182213
less: materials 2046681 1209093
less:labour 331140.2 133354.5
less: salaries 156167 156167
less: equipment costs 496924 490815
less: other costs 23206 24870
total costs 3054118 2014299
net gross margin 968636.2 2167914
LESS:OCCUPANCY COSTS 521835 545835
LESS: corporate allocation 84874 97670
Net profit 361927.2 1524409

Traditional accounting value in lean environment

The traditional accounting has no value in the lean environment due to the following reasons:

Traditional accounting takes all costs and deducts from the revenue and this is the greatest reason why the traditional accounting cannot be used in this way.The traditional accounting takes all costs and calculates the result i.e. the traditional accounting does not apportion any costs according to the activities being conducted in the business and hence this leads to a wrong result being produced and a corrective action taken to rectify that error will be wrong.

The traditional accounting can only be understood by a person who is more informed reader and can understand the complex accounting transactions.The traditional accounting system cannot be understood by a person who does not have enough knowledge of the accounting systems.

The traditional accounting is further difficult and hard to understand and to keep record for the workers of the Lebanon Gasket company.

The technical reason why it does not add value is that it focuses on obtaining the maximum amount from the value stream of the company. It focuses to maximize the output from the limited input in the company and hence get more profitability.

It further views the inventory as an expense for the business and this is not true as the inventory if converted into the finished goods will lead to more sales revenue and profit for the company.

How accounting function can better service strategic planning, control and decision making efforts

The accounting can better service the strategic planning, control and decision making by making efforts and making improvements in the following ways:

The value steam teams and manufacturing cells can better understand the statements and they can further track the performance and take a correcting action to control the situation and hence can lead to problems being solved more easily and in less time period. This will help in reducing the operational inefficiencies being held in the company and due to which the company is experiencing reduced profit margins.

The lean management will help the company identify those activities which don’t add any value to the company’s products and this will also help in the consistent flow at the taken time. This will lead to huge time being saved and the company can reduce the inefficiencies with the help of the accounting.

Recommendation

The company should adopt the new accounting system and the company should have new reports and need to control the costs if the production inefficiencies are there………….

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