Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
ABC
Main Page | JIT Main Page
| 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 |
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For a table that includes TOC see Comparing Traditional Costing, ABC, JIT, and TOC
Related summaries:
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).