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lthough manufacturing organizations worldwide are moving rapidly to adopt lean management systems, field reports suggest that many lean manufacturers con- tinue to use traditional standard cost accounting control systems, despite the argument by lean accounting experts that they hinder lean imple- mentation.^1 No empirical research study has examined field practices to determine if lean accounting theory matches field practices. In this article, we present a research protocol for determining how mature lean manufacturers’ use of standard costing compares to lean
accounting theory. In addition, we offer perspectives to determine why mature lean manufacturers may contin- ue to use standard costing and variance analysis. In our study, we use a model from social systems thinking—Anthony Giddens’s structuration theory (GST)—to guide the determination of nine relevant variables. We anticipate that this research protocol will lead to a better understanding of the reasons lean man- ufacturers retain standard costing and variance analysis and of the facilitating factors that allow some companies to discard standard costing as a control system for operations.
Exploring the Role of
Standard Costing in
Lean Manufacturing
Enterprises:
A Structuration
Theory Approach
DO MATURE LEAN MANUFACTURERS CONTINUE TO USE STANDARD COSTING AND
VARIANCE ANALYSIS? THE AUTHORS PRESENT A RESEARCH PROTOCOL TO DETERMINE IF
THIS IS THE CASE AND HOW IT COMPARES TO LEAN ACCOUNTING THEORY.
B Y M A N J U N A T H H. S. R A O , C M A , A N D A N D R E W
B A R G E R S T O C K , P H. D. , C P A
S TA N DA R D C O S T I N G V E R S U S L E A N A C C O U N T I N G Standard costing was developed to suit the needs of mass manufacturing. The mass manufacturing environ- ment, which is characterized by high fixed-investment costs in the plant and machinery, involves production of large volumes of uniform output. To reap the economies of scale, high fixed-investment costs are spread (averaged) over volumes of units produced. Standard costing is a convenient way of costing outputs in mass manufacturing environments. Standard costs, which are predetermined unit costs, estimate the costs of the output, which then are compared with actual costs incurred to determine variances that are useful for exercising managerial control. Such controls, however, take place at aggregated levels and often weeks after actual operations, thus obscuring the cause-and-effect connections. For instance, variance reports that provide information at aggregated levels do not provide ade- quate information to exercise operational controls in a lean environment. In a lean environment, operational and process con- trols replace managerial and financial controls at aggre- gated levels. Also, visual operational controls replace periodic financial controls at aggregated levels. The objective of lean is to prevent deviations from occurring in the first place and not correcting deviations that have already occurred. Standard costing systems also create a detailed sys- tem of accounting for recording each and every transac- tion to trace the flow of processes through different stages of production. In a single-product environment, standard costing will be easy to maintain and can pro- duce meaningful reports for control. In a multiproduct, lean manufacturing environment, where each process can produce a variety of products, maintaining detailed product accounts is both wasteful and cumbersome.^2 The use of standard costing in such an environment may produce volumes of variance reports that may not only be difficult to analyze but may also not provide any meaningful information to exercise control. Further, accounting for fixed overhead costs becomes more complicated in a lean environment. Fixed costs in a lean manufacturing environment cannot be averaged over the outputs produced because of lack of uniformi-
ty in the output in the multiproduct environment. In such manufacturing systems, it becomes necessary to trace the input costs to value streams rather than a sin- gle unit of output. A value stream consists of a group or family of related products or services that employ the same process steps.^3 According to lean accounting, the profitability reporting system should be organized around value streams. The lean manufacturing environment is character- ized by manufacturing in work cells involving multi- skilled workers and flexible manufacturing systems.^4 Lean manufacturers often find visual controls and work-cell metrics superior for controlling operations. Consequently, according to lean accounting theory, it is surprising to find standard costing in mature lean manu- facturers. The unique features of a lean manufacturing environment have led experts to develop lean account- ing that provides various techniques and metrics to measure performance at subtler (and more powerful) levels of operations.^5 Such measurements are superior to standard costing and variance analysis in several ways because they: u Are developed by each work-cell team to support value-stream metrics, u Provide more detailed information for controlling workflow processes, u Are generated on a more real-time basis (hourly or daily) instead of weeks or months after a production run, and, therefore, u Provide actionable information for correcting prob- lems quickly rather than guessing retrospectively at what happened and trying to make adjustments.
Brian Maskell and Bruce Baggaley have indicated a three-stage path to lean transformation that should be accompanied by corresponding changes in accounting whereby the organization moves away from traditional costing to lean accounting.^6 They also say that, ideally, in stage two of lean transformation, companies must move away from traditional standard cost accounting and variance analysis.
P A R A D I G M S H I F T The shift in emphasis from traditional standard costing to lean accounting in lean enterprises can be considered
use structuration theory as a sensitizing device to ana- lyze and understand factors that may impact manage- ment accounting systems in lean manufacturing plants. We apply the concepts from managerial accounting to the constructs of structuration theory to make proposi- tions about the probable reasons lean manufacturing plants retain standard costing.
C O N S T R U C T S Figure 1 gives the framework of the structuration theo- ry. The theory provides for three levels of constructs: core concepts of structuration, dimensions of structura- tion, and elements of structuration. It shows the con- structs of structuration theory, their interactions, and the variables that operationalize the constructs for this research.
C O R E C O N C E P T S Giddens provides three core concepts: systems, struc- tures, and structuration.^17 At the heart of structuration theory lies the concept of system. We can describe a system as practices or activities that are regularly pro- duced or reproduced by collective social actors. Gid- dens describes systems as reproduced relations that are organized as regular social practices between people.^18 When we consider “systems” as regularly produced or reproduced practices, we can describe management accounting as a system in which management accoun- tants regularly organize, produce, and reproduce man- agement accounting practices like standard costing. Structures are the rules that govern the regularly reproduced practices in social systems and the resources that are organized through such practices. Thus Gid-
Facility (Machinery)
Domination structures (Days in Inventory)
Power (Extent of JIT purchasing)
DOMINATION (Inventory Valuation)
System
Structure
Structuration
Structural dimensions
Concepts
Interpretative schemes (GAAP)
Signification structures (Chart of accounts)
Communication (Reporting)
SIGNIFICATION (Reporting)
Norms (ER P)
Legitimation structures (Responsibility centers)
Sanction (Top management support)
LEGITIMATION (Control )
Figure 1: Constructs of Structuration Theory
D I M E N S I O N S
C O N C E P T S
(Figure adapted from Anthony Giddens, The Constitution of Society , 1984, p.29. Items shown in parentheses were added by authors.)
Structural Dimensions Concepts
Structure
System
Structuration
DOMINATION (Inventory Valuation)
Domination Structures (Days in Inventory)
Signification Structures (Chart of Accounts)
Legitimation Structures (Responsibility Centers)
Norms (ERP)
Sanction (Top-Management Support)
Interpretative Schemes (GAAP)
Communication (Reporting)
Facility (Machinery)
Power (Extent of JIT Purchasing)
SIGNIFICATION (Reporting)
LEGITIMATION (Control)
dens describes structures as “rules” and “resources” that are organized as properties of social systems. Mac- intosh and Scapens describe structures as the codes, templates, blueprints, rules, or formulas that shape and program social behavior.^19 In the context of this study, we consider practices like standard costing as structures of management accounting systems that provide rules, templates, and formulas governing management accounting systems. Structuration also is the process whereby social actors use structures to maintain or change systems.^20 An understanding of the process shows how accounting control systems are maintained or changed to facilitate resource management. In the context of this research, management accountants are the social actors who sup- port lean management objectives by maintaining or changing management accounting practices.
D I M E N S I O N S O F S T R U C T U R AT I O N Management accountants as social actors are involved in structuration through three dimensions of interac- tions in social systems. First, they exercise power over system resources (e.g., inventories). Second, they com- municate and exchange meaning with other social actors (e.g., through management reports). Third, they perform social activities within accepted norms of behavior (e.g., supporting managerial controls). Giddens calls these three dimensions domination, signification, and legitimation.^21 For our study, it is necessary to understand these three concepts of structuration in the context of standard costing practices in lean manufac- turing enterprises. In 1988, Kaplan analyzed the reasons for using cost- ing systems and posited that there are different reasons why costing systems can exist in an organization. Fur- ther, he asserted that a single costing system cannot meet all the objectives of management accounting in any organization. He suggested that management accounting systems should be designed to meet three distinct objectives: inventory valuation, product costing, and control.^22 Our research uses three distinct objec- tives of standard cost accounting practices to represent the three structural dimensions of management accounting systems in lean manufacturing plants. These objectives are inventory valuation (domination), report-
ing (signification), and control (legitimation).
Inventory Valuation (Domination) In a social system, domination refers to how social actors exercise power over resources to apply their transformative capabilities.^23 In manufacturing compa- nies, management accountants assist decision makers by tracking how resources and related costs accumulate through the production process leading to inventory valuation. Such asset valuation is critical for a variety of subsequent decisions about product pricing and possi- ble changes to production methodologies. For our study, the nature of inventory valuation in lean manu- facturing plants represents the domination dimension of the structuration theory.
Reporting (Signification) Signification refers to the way social actors make sense of the social world and exchange and communicate meaning of their understanding of the social world with other social actors.^24 In our study, signification is repre- sented by reporting practices in lean manufacturing plants. Reports are the devices through which manage- ment accountants communicate their understanding and interpretations of the economic impact of opera- tions in lean manufacturing plants.
Managerial Control (Legitimation) Legitimation denotes accepted value standards for social behavior.^25 Our study considers the nature of managerial control as a legitimation dimension of man- agement accounting systems in lean manufacturing plants. Controls aim at ensuring that operations are car- ried on for legitimate purposes in an organization and provide sanctions only for activities that are carried on in accordance with predetermined standards or plans.
E L E M E N T S O F S T R U C T U R AT I O N The three concepts of structuration—structures, sys- tems, and structuration—interact with the three dimen- sions of domination, signification, and legitimation. This interaction results in a 3 5 3 matrix that provides nine elements of structuration (see Figure 1). Table 1 shows the nine elements in terms of opera- tional variables in the context of management account-
Proposition 1. In lean manufacturing organizations with a high level of inventory as indicated by the num- ber of days of inventory on hand, the probability of retention of standard costing will be high.
Monument Machines (Facility) According to structuration theory, the agent uses “facili- ties” to harness resources through their transformative capabilities. In lean manufacturing plants, the machin- ery can be considered a “facility” through which agents exercise transformative capabilities over inventory (resources). The existence of monument machines may create problems for lean transformation. Monument machines typically are large, expensive pieces of equip- ment with large batches, long lead times, and a slow changeover and that serve more than one value stream. They act as bottlenecks, and, in the short run, the solu- tion would be to work around such machines. Because monument machines have a tendency to produce large batches, they may create a huge buffer stock of inven- tory in the downstream value streams, which may require the use of standard costing to monitor and con- trol production made in large batches.^27 Thus we create the second proposition. Proposition 2. In lean manufacturing plants with monument machines, the probability of retaining stan- dard costing for inventory valuation will be high.
Just-in-Time Production (Power) In structuration theory, power represents the capability of agents to bring about transformative changes.^28 In connection with inventory valuation, the agents use their power over inventories by applying appropriate operational strategies. Lean enterprises follow the strat- egy of Just-in-Time (JIT) production. To keep a very low level of inventory, lean managers adopt operational tactics such as kanban (visual control) and create upward and downward linkages on the supply chain. The valuation of low levels of inventory can be done on actual cost. On the other hand, in mass manufacturing the operational strategy is to produce in anticipation of demand to accumulate inventory for the future. High levels of accumulated inventory require standard (esti- mated) costs to value inventories. With this understand- ing, we create the third proposition.
Proposition 3. In lean manufacturing plants where the extent of JIT strategy is high, the probability of retaining standard costing for inventory valuation will be low.
E L E M E N T S I M PAC T I N G R E P O R T I N G (S I G N I F I C AT I O N ) General Ledger Chart of Accounts (Signification Structures) In structuration theory, signification structures are described as codes or modes of coding to communicate meaning. Accounting constitutes signification structures within organizations because accounting is the language of business and finance with its terminology and sym- bols that create and communicate meaning concerning resources and their use. As with any other language, accountants use their own vocabulary and signification structures to record, report, and interpret the financial implications of operations. The general ledger is the heart of accounting sys- tems. The scheme of the general ledger, which is laid out in the chart of accounts (COA), provides a structure for recording and reporting financial impacts of transac- tions. We can consider the chart of accounts as codes for accounting language and tools for cost accumulation. In the standard cost accounting environment, accountants create virtual factories in their books to track each and every transaction for the purpose of product costing and reporting, and periodically they reconcile the cost accounting records with the general ledger figures.^29 Maskell and Baggaley suggest that lean enterprises should move away from the traditional functional chart of accounts and use a simplified COA to trace transac- tions directly to value streams.^30 They say that lean enterprises must simplify the chart of accounts, stream- line their general ledger accounts to clearly capture the benefits of lean, and prepare value-stream income state- ments. Ideally, the changed chart of accounts and accounting entries should reflect the value-based approach of lean strategy against the cost-based approach of mass manufacturing. Appendix 1 shows new accounts and journal entries that a lean manufac- turing plant may use to reflect the value-stream approach of lean accounting as opposed to the cost- based approach of standard costing. Thus we create the
fourth proposition. Proposition 4. In lean manufacturing plants where the general ledger chart of accounts has been modified to support the lean strategy, the probability of retaining standard cost accounting for reporting purposes will be low.
Attitude Toward GAAP (Interpretative Schemes) In structuration theory, “interpretative schemes” repre- sent standardized elements of stocks of knowledge applied by actors in production of meaning.^31 Interpre- tative schemes are at the core of mutual knowledge that actors use to understand interactions. Agents (actors) apply interpretative schemes to signification codes to arrive at a common understanding in activity. In con- nection with accounting, we consider the general princi- ples that accountants use to prepare accounting reports as interpretative schemes. The application of uniform accounting principles prescribed by U.S. Generally Accepted Accounting Principles (GAAP) is mandatory in financial accounting and reporting, but the use of GAAP is not necessary for internal management report- ing. Still, several lean accounting experts indicate that some management accountants act under a belief that standard costing is a GAAP requirement.^32 This clearly indicates a situation of applying wrong interpretative schemes, which results in wrong communication in reporting. Thus we state our fifth proposition. Proposition 5. In lean manufacturing plants where the management accountants believe that the use of standard costing techniques is a requirement under GAAP, the probability of retaining standard costing for reporting purposes will be high.
Communication (Reporting) According to the structuration theory, regular reproduc- tion of structural properties takes place across time and space through communication.^33 Applying this to a lean manufacturing context, we can say that lean manufac- turing strategies can be sustained only when the struc- tural properties of a lean environment are reproduced regularly within organizations. This is possible only through sustained communication of shared meanings on lean practices across time and organizational domains.
Instead of standard costing and variance analysis, Maskell and Baggaley recommend the use of special reports called “box scores” in lean enterprises to report on performance measurement based on key critical suc- cess factors, such as value, flow and pull, empowered people, perfection, and value stream, that are linked to strategic objectives. Also, they recommend preparation of a periodic value-stream income statement to facilitate managerial control.^34 In theory, variance analysis reports have little meaning in lean environments. The contin- ued use of standard costing and variance analysis may contribute to continuing the use of existing structures and hinder the progress on the lean path. Anecdotal evidence suggests that companies may even stop pursu- ing lean strategies because of the failure of traditional standard costing to capture the financial benefits of lean. Thus Proposition 6 expresses the connections between the type of management reports generated and the need for standard costing. Proposition 6. In lean manufacturing plants where the management accountants prepare specialized reports to capture the financial impact of lean, the prob- ability of retaining standard costing for reporting pur- poses will be low.
E L E M E N T S I M PAC T I N G M A N AG E R I A L C O N T R O L (L E G I T I M AT I O N ) Responsibility Centers (Legitimation Structures) Legitimation structures refer to accepted value stan- dards of behavior in a social system and appeal to the sense of what is right and what is wrong in social actors. The concept of legitimation is different in a lean manu- facturing environment and in a mass manufacturing environment. In lean enterprises, customer value cre- ation is considered the legitimate objective of effective operations; in mass manufacturing organizations, the emphasis is on low-cost production. This shift toward value creation has an important bearing on the nature of organizational structure. For the purpose of fixing accountability and exercising control, organizations are divided into various types of responsibility centers, such as cost centers, profit centers, and investment centers. In traditional mass manufacturing companies, cost control forms the basis for managerial control, so the responsibility centers are classified as cost centers. Stan-
lean theory suggests that it is a nonvalue-added activity. With the framework provided here, future researchers can clarify the extent to which mature lean manufactur- ers may be continuing to use SCVA and, through the nine propositions we presented earlier, the logic for retaining SCVA.
M O R E R E S E A R C H I S N E E D E D For a long time, management and organizational theo- rists have debated whether structure or strategy is the most important element for driving organizational change. Giddens’s structuration theory takes a holistic perspective by providing three concepts (systems, struc- tures, and structuration) for analyzing organizational change dynamics.^39 Through the holistic lens of his structuration theory, we have developed nine proposi- tions to examine why mature lean manufacturers con- tinue to use standard costing and variance analysis. Propositions 1, 4, and 7 relate to the organization’s existing structural framework that governs management accounting practices. Propositions 3, 6, and 9 relate to the structuration of management accounting practices. Propositions 2, 5, and 8 relate to the systemic factors that impact the nature of management accounting practices. Structuration theory is considered a “meta theory” that can be used to build theories in specific domains. It can be adapted to lean manufacturing environments to provide new theories that can help design appropri- ate management accounting methods to capture the beneficial financial impact of lean operations. Based on the nine propositions we presented, we encourage management accountants and researchers to reflect on current accounting practices and to discover pathways to better support lean initiatives in adding value to customers while streamlining operations. n
Manjunath H.S. Rao, CMA, Grad CWA, is a doctoral student Ph.D. researcher at the Maharishi University of Management in Fairfield, Iowa. An IMA member, he can be contacted at (269) 762-6030 or hsmanjunath@mum.edu.
Andrew Bargerstock, Ph.D., CPA, is an associate professor of business administration and director of MBA programs at the Maharishi University of Management. You can reach
Andrew at (641) 919-4303 or andyb@mum.edu.
F U R T H E R R E A D I N G Brian H. Maskell and Bruce L. Baggaley, “Lean Accounting: What’s It All About?” Target , Volume 22, Number 1, 2006, pp. 35-43. Brian H. Maskell and Frances A. Kennedy, “Why Do We Need Lean Accounting and How Does It Work?” Journal of Corpo- rate Accounting & Finance , March/April, 2007, pp. 59-73. Frances A. Kennedy and Peter C. Brewer, “The Lean Enterprise and Traditional Accounting—Is the Honeymoon Over?” Journal of Corporate Accounting & Finance , September/October 2006, pp. 63-74. Lawrence Grasso, “Are ABC and RCA Accounting Systems Com- patible with Lean Management?” Management Accounting Quar- terly , Fall 2005, pp.12-27. James L. Huntzinger, Lean Cost Management: Accounting for Lean by Establishing Flow , J. Ross Publishing, Inc., Fort Laurderdale, Fla., 2007. Jerrold M. Solomon, Who’s Counting? A Lean Accounting Business Novel , WCM Associates, Fort Wayne, Ind., 2003.
E N D N OT E S 1 Jean E. Cunningham and Orest J. Fiume, Real Numbers: Man- agement Accounting for Lean Organizations , Times Press, Durham, N.C., 2003. 2 Peter C. Brewer and Frances A. Kennedy, “Creating a Lean Enterprise: The Lebanon Gasket Company Case,” Strategic Finance , September 2005, pp. 49-53. 3 The Institute of Management Accountants, Statement on Management Accounting, Accounting for the Lean Enterprise: Major Changes to the Accounting Paradigm , 2006. 4 James P. Womack and Daniel T. Jones, Lean Thinking: Banish Waste and Create Wealth in Your Corporation , Simon & Schuster, New York, N.Y., 1993. 5 Brian H. Maskell and Bruce L. Baggaley, Practical Lean Accounting: A Proven System for Measuring and Managing Lean Enterprise , Productivity Press, New York, N.Y., 2003. 6 Ibid ., p.15. 7 The Institute of Management Accountants, Statement on Management Accounting, Accounting for the Lean Enterprise: Major Changes to the Accounting Paradigm , 2006. 8 Thomas S. Kuhn, The Structure of Scientific Revolutions , the Uni- versity of Chicago Press, Chicago, Ill., 1962, p.151. 9 H. Thomas Johnson and Robert S. Kaplan, Relevance Lost: The Rise and Fall of Management Accounting , Harvard Business School Press, Boston, Mass., 1987. 10 Carole B. Cheatham and Leo R. Cheatham, “Redesigning Cost Systems: Is Standard Costing Obsolete?” Accounting Hori- zons , Volume 10, Issue 4, 1996, pp. 23-31; Attiea Marie, Walid Cheffi, Rosmy Jean Louis, and Ananth Rao, “Is Standard Cost- ing Still Relevant? Evidence from Dubai,” Management Accounting Quarterly , Winter 2010, pp. 1-10. 11 Anura De Zoysa and Siriyama Kanthi Herath, “Standard Cost- ing in Japanese Firms: Re-examination of its Significance in the New Manufacturing Environment,” Industrial Management and Data Systems , February 2007, pp. 271-283. 12 Robin Cooper and Regine Slagmulder, “Integrated Cost Man- agement,” in A. Bhimani (Ed.), Contemporary Issues in Manage- ment Accounting , Oxford Press, New York, N.Y., 2006, pp.117-146.
13 The Institute of Management Accountants, 2003 Survey of Management Accountants , IMA and Ernst & Young Survey, 2003. 14 Anthony Giddens, The Constitution of Society , Polity Press, Cam- bridge, England, 1984; Anthony Giddens, Central Problems in Social Theory , University of California Press, Berkeley and Los Angeles, Calif., 1979. 15 Hendrick Vollmer, “Management Accounting as Normal Social Science,” Accounting, Organization and Society , January 2009, pp. 141-150. 16 Norman B. Macintosh and Robert W. Scapens, “Management Accounting and Control Systems: A Structuration Theory Analysis,” Journal of Management Accounting Research , Fall 1991, pp. 131-158. 17 Cristiano Busco, “Giddens’ Structuration Theory and Its Implications for Management Accounting Research,” Journal of Management and Governance , Volume 13, Issue 3, 2009, pp. 249-260. 18 Giddens, 1979, p. 66. 19 Macintosh and Scapens, 1991. 20 Thomas Ahrens and Christopher C. Chapman, “The Struc- turation of Legitimate Performance Measures and Manage- ment: Day-to-Day Contests of Accountability in a U.K. Restaurant Chain,” Management Accounting Research , June 2002, pp. 151-171. 21 Giddens, 1979, p.97. 22 Robert S. Kaplan, “One Cost System Isn’t Enough,” Harvard Business Review , January 1988, pp. 61-66. 23 Giddens, 1979, pp. 91-93. 24 Giddens, 1979, pp. 97-100. 25 Giddens, 1979, p. 102. 26 Vollmer, 2009. 27 Maskell and Baggaley, 2003, p. 103. 28 Vollmer, 2009. 29 H. Thomas Johnson, “Manage a Living System, Not a Ledger,” Manufacturing Engineering , December 2006, pp. 73-80. 30 Maskell and Baggaley, 2003, p. 216. 31 Giddens, 1979, pp. 82-83. 32 James L. Huntzinger, Lean Cost Management: Accounting for Lean by Establishing Flow , J. Ross Publishing, Inc., Fort Lauderdale, Fla., 2007, p.18. 33 Giddens, 1979, p. 103. 34 Maskell and Baggaley, 2003, p. 296. 35 Giddens, 1979, pp. 85-88. 36 Ariela Caglio, “Enterprise Resource Planning Systems and Accountants: Towards Hybridization?” European Accounting Review , May 2003, pp. 123-153. 37 Giddens, 1979, pp. 93-94. 38 Frances Kennedy, Lisa Owens-Jackson, Laurie Burney, and Michael Schoon, “How Do Your Measurements Stack Up to Lean?” Strategic Finance , May 2007, pp. 33-41. 39 Marlei Pozzebon, “The Influence of a Structurationist View on Strategic Management Research,” Journal of Management Stud- ies , March 2004, pp. 247-272.
Work-in-process control Variable manufacturing overhead allocated (Variable manufacturing overhead allocated to production.)
Value stream on floor (1, 2, 3, 4, 5....) Conversion costs (Conversion costs are charged to value streams on shop floors based on actual costs/target costs/differential cost or hourly as convenient. There is no concept of direct labor here because multiskilled labor produces a variety of products. Labor is charged at value-stream level and not at product level.)
Variable manufacturing overhead allocated Variable manufacturing overhead efficiency variance Variable manufacturing overhead control Variable manufacturing overhead spending variance (Accounting for variable cost variance.)
Value stream on shop floor (1, 2, 3, 4, 5....) Capacity costs control (1, 2, 3, 4, 5) (Capacity costs charged to value streams on floor on the basis of hourly utilization calculated on the basis of hourly requirement for value stream on floor. This is an important entry that helps management track how much of the capacity has actually been utilized.)
Fixed manufacturing overhead control Salaries payable, accumulated depreciation, and other accounts (Fixed variable overheads incurred.)
Value stream on shop floor (1, 2, 3, 4, 5....) Value stream realized account (1, 2, 3, 4, 5....) (Accounting for revenue on shipped units out of shop floor. Entries made to this account are based on shipping documents.)
Work-in-process control Fixed manufacturing overhead allocated (Fixed manufacturing overhead allocated on predeter- mined standards to production.)
Value stream on shop floor Liability for unfulfilled orders
(Accounting for any order that could not be shipped owing to defect, etc. Any order not shipped out within the predetermined throughput time can be transferred to this account by accountants for follow up with operations. The transfer should be made for the entire order amount. This account will provide adequate and very timely mon- itoring of operations by accounting department without depending on intricate variances. This entry may be reversed if goods are shipped to customer satisfaction or charged to abnormal loss in other cases.)
Bookkeeping Entries in Traditional Suggested Double-Entry Bookkeeping Entries Standard Costing (Cost-Based Approach) for Lean Accounting (Value-Based Approach)
5 5
6 6
7 7
8 8
Fixed manufacturing overhead allocated Fixed manufacturing overhead spending variance Fixed manufacturing overhead production volume variance Fixed manufacturing overhead control (Fixed manufacturing overhead variances recorded.)
Value stream realized (1, 2, 3, 4, 5....) Net income control account (Transfer of all realized values to net income at the end of the period.)
Net income control account Capacity control account (Any unutilized capacity at the end of a period will be charged to income account and will be an indication of slack in operations.)
Bookkeeping Entries in Traditional Suggested Double-Entry Bookkeeping Entries Standard Costing (Cost-Based Approach) for Lean Accounting (Value-Based Approach)
9 9
10 10
