SIMULATION-BASED MANUFACTURING ACCOUNTING FOR MODERN MANAGEMENT

Conventional cost accounting fails to provide manufacturers with reliable cost information due to inability of counting the intangible cost, inaccuracy in calculating overhead, and failure in predicting lifecycle costs. Therefore, manufacturers who consider factory automation have only two choices: either resort to erroneous cost systems only to make wrong decisions, or ignore accounting numbers only to make risky decisions. This paper develops a simulation-based manufacturing accounting (SBMA) model, an updated cost model for modern manufacturing management. Unlike traditional backward and a posteriori accounting, which backtracks historical costs for product costing, SBMA is forward and a prori accounting, which actively traces in real time the dynamic cost drivers (whether tangible or intangible) and predicts lifecycle costs through computer simulation. Therefore, SBMA can make significant contributions to manufacturing performance analysis, capital expenditure analysis, and manufacturing strategy assessment. Further, SBMA can complement existing product costing methods.