COMBINED COST ANALYSIS FOR PLANNING IN MANUFACTURING

MAJOR DECISIONS IN MANUFACTURING COMPANIES ARE BEING MADE WITH INADEQUATE DECISION SUPPORT TOOLS. TRADITIONAL COST ANALYSIS CONTAINS ASSUMPTIONS THAT EVENTUALLY LEAD TO INCORRECT DECISIONS. COST ACCOUNTING DOES NOT INCLUDE ADEQUATE PRODUCTION MODELS AND ASSUMES THAT COSTS ARE LINEAR. COST ALLOCATION RULES USED IN THESE MODELS MAY DISRTORT THE PERCEIVED PART COSTS AND LEAD TO INCORRECT DECISIONS. WE PROPOSE A NEW METHOD OF ANALYSIS; A TOTAL SYSTEM MODEL. IT CREATES A COMPLETE MODEL OF BOTH THE PRODUCTION SYSTEM AND THE BUSINESS EXPENSES. WE INTEND TO USE QUEUING THEORY TO MODEL THE PRODUCTION SYSTEM. DETAILS AND BENEFITS OF THIS MODEL ARE INCLUDED. THE COST MODEL CONTAINS THE PRODUCTION RELATED COSTS AS WELL AS ALL NON-PRODUCTION RESOURCES AND THEIR EXPENSES. THIS DATA NEEDS TO BE SUFFICIENT TO CREATE A FINANCIAL STATEMENT FOR THE MANUFACTURING UNIT. ANALYZING EACH POSSIBLE SCENARIO WILL INVOLVE BUILDING A SYSTEM MODEL OF THAT SCENARIO. DECISIONS ARE MADE BY COMPARING THE SYSTEM MODELS OF EACH POSSIBLE SCENARIO. THIS METHOD OF ANALYSIS AVOIDS THE PITFALLS OF TRADITIONAL COST ANALYSIS AND CAN ANSWER PREVIOUSLY UNADDRESSED QUESTIONS IN A SIMPLE AND UNDERSTANDABLE MANNER.