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Aero Gear, Inc. is a manufacturer of precision gears, gear shafts and gearbox assembly that mostly used in aerospace applications, land-based engine turbines and rockets. The company produces approximately 175 different part numbers for their customers.
In 1998, Aero Gear began their transition into lean business practices in order to remain competitive in the industry and to attract more customers.
As the company transition to lean practices, their accounting system and performance measurement reports have become unreliable, inaccurate and inapplicable to the flow line value streams. The lean production environment led to problems in the current labor reporting, production efficiency and product costing methods. The management wanted to monitor the efficiency, productivity and profitability under the lean production practice.
Yes, the management must change the product costing system of Aero Gear, Inc. in order to align the system with their lean production practice. An aligned management accounting system maximizes profit. An accounting system that fails to provide information that is timely or in a useful format will be rejected by users and will not be beneficial to the management.
Identifying costs at the item level will lead to inaccuracies and will result to irrelevant information. The management should manage the product costing at the aggregate level. It would be preferred to use management financial statements instead of profit and loss statements. ...
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