Profit focused accounting is the latest trend in the area of production and manufacturing. Enhancing the adoption of this trend are the key performance indicators, which focus on the essential dynamics of profit-focused accounting. In this context, four perspectives can be considered. These are - Cost reduction, Quality improvement, Manufacturing processes, and Education & learning.Cost reduction considers such critical factors as less rework, reduction in mistakes, increase in productive man-hours and better utilization of machine time. These factors result into cost reductions that finally lead to profits.Quality improvement teams, quality evaluation time, supervisors training, and quality awareness are the factors, which make the business quality-oriented. These indicators reflect the quality improvement initiatives undertaken by the managementThird perspective, i.e., manufacturing process specifies the improvement required to enhance the productivity and includes reduction in number of processes, and the number of productivity tools employed, percentage reduction in inventories and increase in the number of units produced. Education & learning perspective involves improving the overall business performance by improving the employees- efficiency. This perspective specifies the number of training supervisors, number of on-the-job training sessions, discussions with senior management, and employee empowerment scheme.These perspectives culminate into increased profit to the business, which gets reflected in the accounting.
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Profit focused accounting is about re-structuring accounting tools in such a manner that these gets simplified and easier to understand. This newly evolved accounting reporting model has the benefit of providing a better and improved view of the organization financial standing.
The aim of using this strategy is to construct a more apt financial tool so as to enable the managers receive more insight into the organizational operations. This is an attempt to make the financial reporting procedures more reliable and honest.
In this, throughput accounting and activity based analysis are used to arrive at the desired accounting structure and move ahead with the job of effective financial accountability.
Further, one is also required to judge the appropriateness of this accounting strategy, which in turn is possible with yet another instrument called BSC (Balanced Scorecard).
The utility of this management methodology depends on inclusion of 'useful metrics' in it. These are to be grouped under different categories to which the indicators relate. Thus, the onus of testing benefits of this profit centered accounting can be safely transferred to BSC.
This is the actual scorecard with Profit Focused Accounting Dashboard and performance indicators. The performance indicators include: profit focused accounting cost reductions less rework reduction in mistakes increase in productive man-hours better utilization of machine-time quality improvements quality improvement teams quality evaluation time supervisor training quality awareness manufacturing processes reduction in the number of auxiliary processes number of productivity tools employed percentage reduction in inventories increase in the number of units produced education and learning number of instructors number of on-job training sessions discussions with senior management employee empowerment schemes.
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