Benchmarking and Management Accounting

• Hiram Phillips could have used benchmarking to assist in his cost reduction efforts by following the five stages of benchmarking. Initially, an internal study and preliminary competitive analysis should have been conducted to determine how it currently performs on its dimensions. Some of these activities are labor cost, delivery of shipments, customer service time spent on the phone, and cost of commissions on sales to employees. Using the company internal data and preliminary external competitive analysis, using industry comparisons of quality from reliable consumer reports, would determine the scope and significance of the study for each area.

• In the second stage, a benchmarking team should have been developed of committed individuals to the benchmarking project by Hiram. The benchmarking team should include individuals from all functional area in Rainbarrel. However, the commitment of the benchmarking team have to be a long term thing because adopting new methods and procedures can take several years for an organization culture to fully adopt change. Also, Hiram should have obtained the support of senior management to give the benchmarking team the authority to spearhead the changes, developing a clear set of objectives to guide the benchmarking effort, and empowering employees to make change.

• In the third stage, Hiram should have identifying benchmarking partners that are willing participants that have similar activities and knows the process. Finding a company that is the same or similar in size of the company with specific activity or method being benchmarked would have made a great benchmarking partner for Rainbarrel. Having a wide array of benchmarking participants would have helped the company increase its be...

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...uppliers to manufacturing to distribution and service costs. If distribution, service, training or other downstream activities significantly impact a product’s cost, then the employees who are the experts from these areas should be actively involved in designing the product to minimize these costs.

If Rainbarrel uses the target costing system for profit planning and cost management, the company will be able to focus on minimizing the costs of the company’s products in RD & E stage of a product’s total life cycle rather than the more costly way of trying to reduce them during the manufacturing stage. This system will help cut cost and provide the ability to be more efficient and effective as well.

Reference:

Atkinson, A.A., Kaplan, R.S., Matsumura, E.M., Young, S.M. (2007). Management Accounting (5th ed.). Upper Saddle River, New Jersey: Pearson Education, Inc.