Content
4.2 Problem of current MFCA
draft of ISO 14051 includes three annex which are difference between MFCA and traditional cost accounting, cost calculation and allocation in MFCA, case example of MFCA.
There are about 20 papers about MFCA in China National Knowledge Infrastructure (CNKI) by 2012. In China, Zhen Guohong4-10), Zheng Ling, Xiao Xu4-11) and other scholars introduced the evolution and the foundational principle of MFCA. Only Feng Qiaogen4-12) Xiao Xu4-13), ZHANG Benyue4-14) applied the MFCA to companies and did case analysis.
Onsui Ryoiti and Deng Mingjun introduced the research results of MFCA theory and cases of Japan in their paper4-15). Generally speaking, the research on the theory or the case study of MFCA in China is not much. In the current times the Chinese MFCA research is mainly on the MFCA theory and lack of practice research. Few enterprises are applying the MFCA to the specific corporate management. But in these few years, the development of MFCA in China is rapid. Just in 2011, four papers about MFCA are published in the key journal.
findings based on MFCA can be seen with half an eye. Therefore, compared to find reason of negative product for one time, it is more meaningful for enterprise to monitor and reduce continuously cost and weight of negative cost. On the other hand, cost allocation of MFCA is quite different with traditional costing. In traditional costing, cost of finished products is composed by semi-finished products of former process and input of material, energy, labor and other system cost of last process, as shown in Fig 4.2. So accountants first calculate cost of semi-finished products of former process, and then consider semi-finished product as material and calculate cost of finished product. But in MFCA, cost of material, energy, labor and other system cost are allocated in every process as shown in Fig 4.3. It leads to cost allocation more cumbersome. It is not fit to be carried continuously; so many companies just choose one part of produce line for one or two times to apply MFCA.
Table 4.2 The proposal in the case example in Japan4-15)
Company Target process Finding based on MFCA analysis
NITTO DENKO Corporation
Dissolution, batch, composition, coating, heating, cutting and inspection, packaging
MFCA highlighted the hidden cost.
SUMIRON CO.,LTD
Adhesive compound, coating and aging, inspection intermediate product inventory, stacking, laminating and cutting
Solvent and cutting loss became main material loss.
TOYO INK
MFG.CO.,LTD
Mixing, extrusion molding, inspection, filling
Indirect materials became material loss.
CANNO Inc. Grinding, smoothing, polishing, centering, coating inspection
Cut-out material is main loss.
TS Corporation Exterior plate shape process, bending work, assembly.
Material loss account for a large percentage, the punching loss is main loss.
Katagiri
Seisakusho Co.,Ltd
Cutting, annealing, machining, inspection Most significant material loss happens in the machining and cutting process.
Shimizu Printing Inc.
Preparation, production, operational change
Invest in new equipment for double-sided printing.
Kohishin Rubber CO.,Ltd
Calendar, laminator, roll inspection Material loss generated in the process in which material could not be returned to the in-process recycling.
Shinryo Co.,Ltd Manufacturing of brown sugar, molding, dry, packaging
Recycling the defective sugar and packaging loss account a lot.
Fig 4.2 Traditional costing model
Fig 4.3 Costing model of MFCA
According to questionnaire about which factor is important in symposiums of MFCA promotion hold by Japan from 2007 to 2011, more and more people also think simplification of MFCA calculation tool, example of application of MFCA and improvement of data handing is important as shown in Fig 4.44-15).
Fig 4.4 Which factor is important when enterprise apply MFCA 4.2.2 Inaccuracy of cost allocation in current MFCA
The method of cost allocation is very important; it will directly affect the rationality of the cost information. But the current MFCA allocates the system cost and energy cost to the positive products and negative products according to the weighting ratio of material of negative product and positive product4-18), this kind of allocation method of cost is not very accurate in fact.
In the current MFCA, we measure the material loss, and then, allocate system and energy costs to the negative product by the material loss ratio. However, Generally speaking, the energy and system cost change with the product amount, have not directly relationship with the cutting wastage, auxiliary material and other kinds of waste. Although the defective
0 10 20 30 40 50
Percentage of factors appearing / %
2007 2008 2009 2010
product is also a kind of waste, it consumes the labor resource, material and energy resource.
As a result, the writer thinks energy and system cost should be allocated between positive product and defective product. What we have to indicate is that system and energy cost are consumed for production not for the disposal of waste. It does not make sense that we allocate the energy and system cost for production to the waste such as the cutting waste, waste water and so on.
We will take the example in MFCA Simplified Procedure Guideline to explain how the negative cost is exaggerated because of calculation method. In this guideline, production process of gum roller was used to illustrate the simple application method of MFCA As shown in the following flow chart in the Fig 4.54-18), the gum is stacked to the shaft to get the gum roller.
Fig.4.5 The process low of gum roller The data need be collected is shown in Table 4.3.
Table 4.3 Necessary data in current MFCA4-18)
Bill of material Price of material
Shaft：1unit Gum：100kg
The mix standard of gum, vulcanizing agent and the foaming agent
Gum ： Vulcanizing agents ： Foaming agent=1000:1:1
The mix standard of adhesive agent and thinner Adhesive agent：thinner= 1:1
Shaft：100¥/unit Gum：300¥/kg Vulcanizing agents：10,000¥/kg
Foaming agent：10,000¥/kg
Adhesive agent：5,000¥/kg Thinner：25¥/kg Electric price：200¥/kwh
Disposal cost of gum mixture：50 ¥/kg Disposal cost of adhesive agent：100 ¥/kg Disposal cost of thinner：100¥/kg
Input of material Analysis of product standard
Shaft：5000 units Gum：500kg Vulcanizing agents：0.5kg
Foaming agent：0.5kg Adhesive agent： 4kg Thinner：6.6kg
product：150g/unit Shaft：100g/unit Adhere,
the gum mixture is 50g/unit
Adhesive：0.6g/unit (technique standard)
Production performance System cost and energy cost used to produce The amount of positive product：4950 units
The amount of defective products ：50 units
Labor cost ：500,000¥ Depreciation expense： 200¥
Electric amount ：400kwh Electric cost ：80,000¥/kwh
In current MFCA, system cost and energy cost are allocated by the weight ration of negative materials as shown in formulas (4-1)
NC= MC𝑛＋（SC𝑝 − 1＋SC𝑝＋EC𝑝 − 1＋E𝑪p）× + DCw
(4-1) NC：Negative cost EC：Energy cost SC： System cost MC𝑛：Material cost included in waste and defective products
M𝑛：Amount of negative material (material in waste and defective products) M𝑖：Amount of all material input
DCw：Waste disposal cost P：This process P-1：Former process We got negative cost took 21% of total cost as shown in Table 4.44-18).
Table 4.4 MFCA Balance Form
Input Output
The total cost of input 1474000¥Positive products 1164000 Negative product
310000¥
79% 21%
Material Price 103¥/kg
Amount kg
Cost 103¥
Amount
kg Ratio Cost 103¥
Amount
kg Ratio cost
103¥
Shaft 1 500.0 500 495.0 48.9% 495 5.0 0.5% 5.0
Gum mixture 0.319 501.0 160 247.5 24.5% 79.0 253.5 25.1% 81
Adhesive
agent 5 4.0 20 3.0 0.3% 14.9 1 0.1% 5.2
Thinner 0.025 6.6 0.2 - 0% 0 6.6 0.7% 0.2
Subtotal
- 1011.6 680.2 745.5 (b)73.7
% 588.9 266.1 (c)26.3% 91.3
share of cost 46.2% 40% 6.2%
Disposal of waste
Price 103¥/kg
Amount kg
Cost 103¥
Amount kg
Cost 103¥
Amount kg
Cost 103¥
Gum mixture 0.05 253.5 12.7 - - 253.5 12.7
Adhesive
agent 0.10 1.0 0.1 - - 1.0 0.1
Thinner 0.10 6.6 0.7 - - 6.6 0.7
Subtotal - - 13.5 - - 261.1 13.4
Share of cost 0.9% 0.9%
Utility and system
Price 103¥/kWh
Amount kg
Cost 103¥(a)
Ratio
%(b)
Cost
103¥(a×b) Ratio(B) Cost 103¥(a×c)
Power 0.20 400 80.0 73.7% 59.0 26.3% 21.0
Labor cost - - 500 73.7% 368.5 26.3% 131.5
Depreciation - - 200 73.7% 147.4 26.3% 205.1
Subtotal - - 780 - 574.8 - 184.2
Share of cost 52.9% 39% 13.91%
In this example, input of energy and system takes a large percent of total input, as a result, the allocation of system and energy cost will have a great effect for the negative product cost.
The material loss mainly came from gum mixture which is cut. To reduce the waste, company will try to shorten the both ending of com mixture which need be cut. But this method cannot reduce the input of energy and system cost of action of cutting. So energy and system cost has not direct relationship with amount of waste. It just has direct relationship with amount of product.
Labor cost of negative product take a large part of total negative cost, so another proposal is reducing labor cost 50%, however, reduction of labor cost will not lead to reduction of waste , so environment load will not decease with reduction of labor cost. Labor cost for production should not be considered as negative cost.
The costing method of current MFCA exaggerated the cost of defective product.
In the next content, this study will modify costing method of MFCA to make it more accuracy and easier to apply. This study will integrate MFCA and Enterprise Resource Planning (ERP) to as to MFCA to be used in daily costing, and improve Income Statement. At last apply the modified MFCA in Chinese company.