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Webinar 2: Using TOC implicitly at the Board of a non-TOC company
28 January 2020
The comments about the webinar
Great talk Nerius. Congratulations on your board role. you are probably making a great impact. Well Done!!
Thank you Nerius! Keep up the good work
Charlene S. Budd, PhD, CGMA
Hi, Nerius. Thanks for presenting your webinar yesterday. I was unable to attend yesterday, but I just saw the recording and want to compliment you on the presentation. Your ideas are extremely good. I regret not being present to support your approach.
You are reminding accounting people of something they most likely were exposed to at university, but were not permitted to use when newly hired into business. In the U.S., a Cost Accounting class is where accounting majors are introduced to management decision analysis, termed Direct or Variable Accounting. This approach requires totally variable cost that naturally can be related to the unit level – primarily materials and outsourcing costs, which, when subtracted from Revenues, results in Contribution Margin or Throughput.
Not only small-sized and medium-sized businesses need this information – ALL businesses do! By encouraging organizations to use it, you make the accountants feel good about their contribution and the managers, when they have the information they need, will make decision improvements on their own. This allows managers to also feel good. Then they can seek out help to make even better decisions. Top managers (CFOs, CEOs, Directors, etc.) frequently make very poor decisions because they do not have the relevant information they need.
Fully allocated costs to the unit or product level is NOT relevant for internal decisions. Management must use non-variable costs, but in total, not allocated. I am convinced that monthly internal income statements must show Revenue, Variable Costs, Contribution Margin and 1/12 of Total Annual Estimated Manufacturing and Labor Overhead (from the annual master budget amounts).
Please do not limit your approach to small and medium-sized businesses. I suggest you might have a conversation with the highest-level accounting-trained person you can find in an organization and ask them about their course work and training and if they remember Direct or Variable Costing for operating decisions.
Thank you for your support. My challenge is more with non-finance people. They are told (nobody knows by whom) to look for “full costs” and make decisions accordingly. As they do not know all the assumptions behind cost accounting, therefore it is not easy to explain why cost-accounting is not good for decision making. But step-by-step I will get there ?
Webinar 1: Not a Workplace But Business
5 December 2017