Concept

Traditional Costing

ABC

JIT 
(Lean Enterprise)

TOC

Original purpose

Inventory valuation and matching & overall profit

More accurate product costs for management decisions

Reduce waste & increase efficiency

Improve scheduling in a job shop

Expanded purpose

Management control - variance analysis

Leads to activity based management

System philosophy of Continuous improvement

System philosophy of Continuous improvement

When developed

1900 -1950

1910 & Rediscovered 1980s

Deming+ Toyota 1950-1960

1980s

Concept of optimization

Promotes sub-system optimization

Not addressed by ABC

Promotes system optimization

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

5 step method based on identifying constraints

Short or long run orientation

Short run emphasis with long run implications

Long run variable costs

Long run improvement

Short run emphasis with long run implications

Main focus or concept

Production and value added by production departments

Cost tracing to provide accurate costs & profits by cost object, e.g., products etc

The whole system: interdependence, cooperation & synergy

Making money by increasing throughput, decreasing assets and operating expenses

Production control or emphasis

Push system with emphasis on labor efficiency & production volume

Not addressed

Pull system using kanban authorizations to produce

Demand pull using the drum-buffer-rope concept

Overhead cost allocation emphasis & 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

No cost allocations

Product costs accuracy

Not accurate - distorted

Fairly accurate

Fairly accurate

Product costs do not exist

Inventory levels

High

Not addressed

Minimum to zero

Buffers in front of constraints

Waste

Price and quantity variances

Not addressed, extends to ABM

Emphasis on eliminating

Reduce to reveal constraints

Capacity focus

Labor & machine utilization, production volume variances

Measure unused capacity costs to manage capacity

Measured by cycle time. Emphasis on balancing capacity & the flow of work

Balance the flow of work but do not try to balance plant capacity

Quality of conformance

Inspect to find spoilage

Not addressed

Quality at the source, Jidoka

Emphasis at bottlenecks

Effect producing excess inventory has on profit

Increases profit

Increases profit

Using throughput costing it decreases 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

Many similarities to the communitarian concepts, but TOC is not as broad

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 & dedicated cells

Promotes it by showing that more diversity produces more throughput

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

Recognizes variability referred to as statistical fluctuations & dependent events in TOC

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

Maximize throughput, while minimizing inventory (i.e., assets) and operation expense

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