Kenco Engineering Corporation
Strategy-Driven Costing & Lean Management
Kenco Engineering Corporation
Strategy-Driven Costing & Lean Management

Question 1) Generally Accepted Accounting Principles require that product costs include all manufacturing costs and only manufacturing costs. Activity-based costing usually does not include all manufacturing costs and will often include nonmanufacturing costs. Therefore, ABC is not currently acceptable under GAAP. Kenco’s costing system is preferable under GAAP because it includes all manufacturing costs, and only manufacturing costs. Kenco currently uses one cost driver: a product’s consumption of TCing machine time and allocates manufacturing costs based on the use of that …show more content…

Kenco still benefits from the bulk purchase price since suppliers agree to discount based on annual purchase volume. By implementing this change the cost of materials dropped 15%.

To increase quality, the company has designed a factory operations report that focuses on product quality and cycle time centered on TC activities, their strategic constraint. They implemented lean JIT cells centered around their TC activities as well. By implementing this strategy, inventory dropped from $80,000 to $6,000, worker’s compensation costs fell more than 60%, new equipment was purchased from savings, lead order time dropped from maximums of eight weeks to eight days, and manufacturing defects fell from 25% to one per week. The new processing layout uses conveyors for a single-unit production line through the five activities. “New materials-flow equipment allows each process operator to receive and position each job. Forklifts bring steel to the beginning of the line, and remove finished product at the end. The elimination of manual positioning lessens setup time and reduces in-process inventory.”

To increase on-time deliveries they created a reporting system that focused on on-time deliveries. They define on-time deliveries as those delivered within 8 days. One way they eliminated lead-time was by outsourcing the cutting process and redesigning the production process. Outsourcing the cutting process not only reduced lead time, but it reduced worker’s