Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
|Traditional Costing, ABC and JIT Concepts|
|Concept||Traditional Costing||ABC||JIT and Lean Enterprise|
|Original purpose||Inventory valuation, matching and overall profit||More accurate product costs for management decisions||Reduce waste and increase efficiency|
|Expanded purpose||Management control - variance analysis||Leads to activity based management||System philosophy of Continuous improvement|
|When developed||1900 -1950||1910 and Rediscovered 1980s||Deming + Toyota 1950-1960|
|Concept of optimization||Promotes sub-system optimization||Not addressed by ABC||Promotes system optimization|
|Emphasis on improvement||Assumes a static set of constraints to optimize within, not improvement||Not addressed by ABC, but extends to activity analysis||Kaizen to reach perfection using the Plan-Do-Check-Action technique|
|Short or long run orientation||Short run emphasis with long run implications||Long run variable costs||Long run improvement|
|Main focus or concept||Production and value added by production departments||Cost tracing to provide accurate costs and profits by cost object, e.g., products etc||The whole system: interdependence, cooperation and synergy|
|Production control or emphasis||Push system with emphasis on labor efficiency and production volume||Not addressed||Pull system using kanban authorizations to produce|
|Overhead cost allocation emphasis and drivers||Allocate using production volume based drivers||Trace to activities, then to products using various drivers||Assign costs based on cycle time in the cells|
|Product costs accuracy||Not accurate - distorted||Fairly accurate||Fairly accurate|
|Inventory levels||High||Not addressed||Minimum to zero|
|Waste||Price and quantity variances||Not addressed, extends to ABM||Emphasis on eliminating|
|Capacity focus||Labor and machine utilization, production volume variances||Measure unused capacity costs to manage capacity||Measured by cycle time. Emphasis on balancing capacity and the flow of work|
|Quality of conformance||Inspect to find spoilage||Not addressed||Quality at the source, Jidoka|
|Effect producing excess inventory has on profit||Increases profit||Increases profit||Using throughput costing it decreases profit|
|Relation to framework||Consistent with the individualistic concepts||Not addressed. Potentially okay with either concept||Consistent with team or communitarian concepts|
|Signals towards increasing product diversity||Tends to promote it by showing that more diversity creates higher production volume and lower unit cost||Discourages it by showing the additional costs created by product diversity, i.e., overhead creeps up||Discourages it through the concepts of focused factories and dedicated cells|
|Recognition of the concept of variability||No explicit recognition of common cause variation||Not addressed specifically from the SPC perspective, but it recognizes that diversity creates variation in costs||Recognized and applied at the operator level with statistical process control (SPC) techniques|
|Performance Measurements||Mainly financial measurements, i.e., variances, Net income and return on investment||Product costs, service activity costs and customer costs all related to profitability||Non-financial measurements such as cycle time, on time delivery, quality (% defects) inventory turns as well as unit costs|
For a table that includes TOC see Comparing Traditional Costing, ABC, JIT, and TOC
Clinton, B. D. and S. C. Del Vecchio. 2002. Cosourcing in manufacturing. Journal of Cost Management (September/October): 5-12. (Summary).
Clinton, B. D. and S. C. Del Vecchio. 2002. Cosourcing in manufacturing - Just in time. Journal of Cost Management (November/December): 30-37. (Summary).
Cokins, G. 2002. Integrating target costing and ABC. Journal of Cost Management (July/August): 13-22. (Summary).
Cooper, R. 1996. Activity-based management and the lean enterprise. Journal of Cost Management (Winter): 6-14. (Summary).
Cooper, R. and C. A. Raiborn. 1995. Finding the missing pieces in Japanese cost management systems. Advances in Management Accounting (4): 87-102. (Summary).
Fullerton, R. R. 2003. Performance measurement and reward systems in JIT and non-JIT firms. Cost Management (November/December): 40-47. (Summary).
Fullerton, R. R. and C. S. McWatters. 2002. The role of performance measures and incentive systems in relation to the degree of JIT implementation. Accounting, Organizations and Society 27(8): 711-735. (Summary).
Goodson, R. E. 2002. Read a plant - fast. Harvard Business Review (May): 105-113. (How the rapid plant assessment (RPA) process can tell you if a factory is truly lean in as little as 30 minutes. The process includes two tools: The RPA rating sheet includes 11 categories for assessing leanness, and the RPA questionnaire includes 20 yes or no questions). (Summary).