RE: den.list-d Digest V2002 #45

["John McConnell" <wysowl@msn.com.au>]

Dr. Kenneth M. Macur, C.P.A. wrote:

1. There is a fourth way, a la Goldratt and The Goal. Inventory is the cost
of items acquired that you intend to sell; hence, only raw materials. Treat
all conversion costs as period costs--expensed as incurred. Throughput is
the money generated by the system of converting inventory to SALES (not just
finished goods inventory).

2. You mentioned the balance sheet. (My background: I'm a CPA and former
accounting professor.) The balance sheet (and income statement) are NOT
intended to be used by managers (or any insiders) to run the company. Formal
financial statements are for the benefit of investors and creditors and
potential investors and creditors! REALLY!  They are the result of lots of
rules (established in a political/economic system) and some theory. Using
"externally" focused statements to manage things internally is an exercise
in using the correct wrench to pound in the correct screw!

Comment:
========

Dr. Macur seems to be on the money.  There are many ways to cost inventory,
but lately I see a lot of pressure to reduce inventory based on fully
absorbed cost.  Too often the outcome is (amongst other things) reduced
customer service levels and a wrenching shift in priorities to regain lost
ground there.  We are not always good at systems thinking.

Dr. Macur's comment on "using the correct wrench to pound in the correct
screw" feels poignant.  Also, as Maslow observed, if one's only tool is a
hammer, it is remarkable how many things start to look like a nail.

Thanks Dr. Macur.

Cheerio!

John McConnell
Wysowl Pty Ltd
Ph: intl+61 7 3882 1822
Fax: intl+61 7 3882 1800