Garden Equipment Manufacturing Ltd. (GEM) has introduced a just-in-time production process and is considering the adoption of lean accounting principles to support its new production philosophy. The company has two product lines: lawnmowers and weed whackers. Two individual products are made in each line. The company's traditional cost accounting system allocates all plant-level overhead costs to individual products. Product-line overhead costs are traced directly to product lines, and then allocated to the two individual products in each line. Equipment costs are directly traced to products. The latest accounting report using traditional cost accounting methods included the following information (in thousands of dollars).

Required:
a. What are the cost objects in GEM's lean accounting system? Which of GEM's costs would be excluded when computing operating income for these cost objects?
b. Compute the operating income for the cost objects identified in requirement b. using lean accounting principles. Why does operating income differ from the operating income computed using traditional accounting methods?
c. Which competitive strategy is best served by lean accounting principles?

Question

Garden Equipment Manufacturing Ltd. (GEM) has introduced a just-in-time production process and is considering the adoption of lean accounting principles to support its new production philosophy. The company has two product lines: lawnmowers and weed whackers. Two individual products are made in each line. The company's traditional cost accounting system allocates all plant-level overhead costs to individual products. Product-line overhead costs are traced directly to product lines, and then allocated to the two individual products in each line. Equipment costs are directly traced to products. The latest accounting report using traditional cost accounting methods included the following information (in thousands of dollars).
  
Required:
a. What are the cost objects in GEM's lean accounting system? Which of GEM's costs would be excluded when computing operating income for these cost objects?
b. Compute the operating income for the cost objects identified in requirement b. using lean accounting principles. Why does operating income differ from the operating income computed using traditional accounting methods?
c. Which competitive strategy is best served by lean accounting principles?

Quizplus · Accepted Answer

The Answer of Garden Equipment Manufacturing Ltd. (GEM) has introduced a just-in-time production process and is considering the adoption of lean accounting principles to support its new production philosophy. The company has two product lines: lawnmowers and weed whackers. Two individual products are made in each line. The company's traditional cost accounting system allocates all plant-level overhead costs to individual products. Product-line overhead costs are traced directly to product lines, and then allocated to the two individual products in each line. Equipment costs are directly traced to products. The latest accounting report using traditional cost accounting methods included the following information (in thousands of dollars).
  
Required:
a. What are the cost objects in GEM's lean accounting system? Which of GEM's costs would be excluded when computing operating income for these cost objects?
b. Compute the operating income for the cost objects identified in requirement b. using lean accounting principles. Why does operating income differ from the operating income computed using traditional accounting methods?
c. Which competitive strategy is best served by lean accounting principles?