McDonalds and management accounting – what’s the link?

In management accounting (the branch of accounting that provides decision making information to business managers), a technique called “standard costing” is often used to cost products or services.  This technique tries to establish a “standard” for things like the amount of time taken to perform a task or the amount of material used to make a product. For example, the National Car Testing Service (NCTS) in Ireland performs a standard set of checks on each car which lasts about 30 minutes. This standardised list of checks can be used to schedule work and estimate costs.  You might be thinking that a technique like standard costing would be less relevant to accountants in business as so many businesses nowadays try to be “non-standard”, delivering differentiated products and trying to offer varying levels of service. But as the NCTS  example shows, may businesses still operate in accordance with standards. One of the best known examples of such a business is the ubiquitous McDonald’s. No matter you go a Big Mac is a Big Mac – it’s a really standard product which has a recipe something like this:

Two 1.6 oz (45 g)  patties,special “Mac” sauce, lettuce, cheese, pickles, onions and a three part bun.

This ingredients can be easily costed to get a standard ingredients cost. You can probably imagine too how the actual preparation of a Big Mac in a restaurant could be timed, so you could easily have a standard preparation time. In fact the way McDonalds do things has been coined “McDonaldsization” by sociologist George Ritzer (see here). With such standard products, it’s quite easy to see how a business like McDonalds can use standard costing techniques to not only cost its products, but also to measure performance. This is simply because of such little variation in products like a Big Mac.  But care should be taken in using standard costing ideas, even where it might appear as a useful idea. Take healthcare for example – I’m not suggesting McDonalds start doing healthcare!  There are many “standard” diseases with “standard” treatments.   All treatments cost money and as healthcare providers struggle with falling budgets, would it be an idea to provide “standard” treatments?  I’d like to think no. For example, what would happen if the treatment time for goes beyond standard. Do you tell the patient “sorry you allotted time is up, next please”. The difference here is that although something may appear like a pretty standard task (i.e. the treatment), the standard will be broken regularly. To hold people accountable for breaking the standard would potentially be a life-threat – unlike your Big Mac taking a little longer to cook.  For a little more information, take a look at this link http://bit.ly/9yuhZ6