Abi Kurnia Hutama

F0313001
Management System Control
Case Study: Boeing Company
A. Factual Summary
Boeing Company has employee named Mike MacFarlane, a cost analyst that transferred
from Boeing Company HQ to Propulsion System Division (PSD). In the Boeing
Company HQ, he did not well do his job, because most of his work there was far enough
from actual airplane production as his liking. He was assigned to a project team that
examined the potential value of process and activity analysis.
Boeing Company launched several strategic to enhance their competitive advantages. The
central theme was to achieve continuous improvement in overall companys operations.
B. Problem Statement
Boeing Companys management felt that their existing management accounting system
not enough to provide a reliable information about cost to identify improvement
opportunities. What happen to management accounting system in Boeing Company?
How the effect using process and activity analysis to improvement?
C. Analysis of Problem
By using existing management accounting system, Boeing company must deal with
problem to identify the improvement opportunities that cant be find by using
management accounting that just based on functional organizations.
The cost that currently present in managerial report may contain some fraudulent activity,
because when work crossed organizational boundaries, costs created by underlying total
production process remained largely hidden. The cost that still largely hidden, can be
caused by the limitation of implementing existing management accounting system, or
there was a fraudulent activity that performed by workgroup.
The shortcoming of the cost visibility is that it is structured along functional organization
lines. If Boeing Company want to identify opportunities for process improvement, they
need to associate cost with processes and activity, not just functional organizations. Also,
they need to be able to estimate the change in total cost, given a change to manufacturing
process. By viewing the data, they will enhance ability to identify improvement

opportunities. Then, they must be able to compare their relative importance and to judge
what the leverage that influence in making modifications.
D. Solution
Boeing company can choose between activity based costing or process and activity
analysis to provide information about cost. While activity based costing emphasised
accounting, process and activity analysis emphasised companys intention to apply the
project result to all business operations and not just to improve the cost management
system. Process and activity analysis was like a comprehensive medical check-up, a
labour-intensive diagnostic tool that pointed to the areas where high leverage
opportunities existed. In other hand, process and activity analysis did not provide the remeasurement capabilities of a costing system, which the term activity based costing
implied.
E. Recommended Solution
In the context of Boeing Companys case, process and activity analysis provide the need
and objectives of company. Boeing Companys objective is to realign the accounting
system so that the cost information provided aligns with understanding of the flow of
resources in the processes at Boeing Company. By using process and activity analysis,
Boeing Company will have ability to identify specific opportunities for improvement.
There are five objectives of Boeing company must achieve by using process and activity
analysis:
1. Increase cost visibility
2. Identify major cost driver
3. Trace overhead cost to processes where possible
4. Identify non-value added activity
5. Provide a processes flow chart to help guide improvement measures
The Boeing Company hopes by implementing the process and activity analysis make
their ability to identify, predict and eliminate cost that impede efficiency.
F. Implementation
In the first step of process and activity analysis each workgroup developed a list of
activities and tasks. Each task was characterised by its value, end-product, activity type,
task time, flow time, and task dollars. The value was either primary external (PE),
primary internal (PI), support external (SE), or support internal (SI).

For each task, the workgroup estimated the task time, which was the number of hours
spent on each task per product unit. The task time described the actual duration of the
work performed. The hours spent per unit then were multiplied by the number of units
produced to obtain estimated total hours.
The project team collected all directly assignable costs for each workgroup. These costs
included direct labour, indirect labour, overtime, fringe benefits and non-labour costs
such as supplies, training, furniture and fixtures, shipping material, etc. These costs were
extracted from the current cost accounting system by the charge number, which uniquely
identified each workgroup. That is, the only costs assignable to each workgroup were
those that the groups supervisor could control.
By using the process and activity analysis, company have ability to depict the interactions
between the various process and the cost affected by that process or activity. But, to
implementing process and activity analysis, company may have several problems.
1. Data collection in process and activity analysis was performed mainly by interview.
Company must rely on interviewers that may have limited understanding about
certain companys business process and activity. If company create training program
for interviewers, company may deal with the cost of that training program itself.
2. The reliability of information given by each workgroup was difficult to determined.
Also, there was difficult to determine who and how much people that must interview.
3. Difficult to identify if the workgroup performed a fraudulent activity, because data
collection was performed mainly by interview.