Activity Based Costing, Time-Driven Activity Based Costing and Lean Accounting: Differences Among Three Accounting Systems’ Approach to Manufacturing

Abstract

Choosing an appropriate accounting system for manufacturing has always been a challenge for managers. In this article we try to compare three accounting systems designed since 1980 to address problems of traditional accounting system. In the first place we are going to present a short overview on background and definition of three accounting systems: Activity Based costing, Time-Driven Activity Based Costing and Lean Accounting. Comparisons are made based on the three basic roles of information generated by accounting systems: financial reporting, decision making, and operational control and improvement. The analysis in this paper reveals how decisions are made over the value stream in the companies using Lean Accounting while decisions under the ABC Accounting system are taken at individual product level, and finally we will show how TD-ABC covers both product and process levels for decision making. In addition, this paper shows the importance of nonfinancial measures for operational control and improvement under the Lean Accounting and TD-ABC methods whereas ABC relies mostly on financial measures in this context.

Integration of Activity-Based Costing Modifications and LEAN Accounting into Full Cost Calculation

“…For this, TDABC time driver element is used. TDABC identifies the available shortage of the production capacities (Oker & Adiguzel, 2010;Monroy et al, 2014;Santana et al, 2017). This correlates to the LEAN idea of continuous improvement.…”

“…Oker & Adiguzel (2010) have verified TDABC applicability using the example of a large production company: while the TDABC can be applied to production, this is not as easy as in case of service companies. Key advantage of the TDABC is the ability to identify free production capacities and shortage of capacities in the course of processes (Oker & Adiguzel, 2010;Monroy et al, 2014). This analysis is performed only by measurement of the work time, while for actual production, measuring several parameters (tones, m 2 , etc.)…”

“…LEAN accounting goals are implemented under three key principles: visual management, value stream management, continuous improvement (Monroy et al 2014). Visual accounting implies presentation of weekly, monthly, quarterly financial results in the form of graphs, images, colour tables, replacing the standard forms of statements.…”

“…The aim of the modification: to eliminate the weakness of the conventional accountingthe absence of control over the value stream. In view of the proposal by Monroy et al (2014), the value stream objects and business sustaining value stream have been identified (step 3). LEAN does not specify allocation of indirect costs (Gunduz, 2015;Obara & Wilburn, 2012).…”

“…Recently, implementation of LEAN production management system has been rapidly growing in popularity among production companies. LEAN philosophy towards production management is contrary to the conventional production management approach, and, in certain aspects, LEAN accounting often contradicts conventional organization of accounting processes (Obara & Wilburn, 2012;Monroy et al, 2014;Pickering & Byrnes, 2016;Wnuk-Pell, 2018). LEAN philosophy requires adapting all corporate processes to the customer's needs.…”