Comparison Activity Based Costing, Time-Driven-ABC and Lean Accounting
Anneke Zwart, Student (University), Netherlands, Moderator
In the article "Activity Based Costing, Time-Driven Activity Based Costing and Lean Accounting: Differences Among Three Accounting Systems", 3 ways of accounting are compared. The comparison is made on three factors: 1: Decision making, 2: Financial reporting and 3: Operational Control and Improvement.
1. Decision Making:
Decision making takes place at a product level in both ABC and Time Driven ABC. In other words, the cost of completing a certain activity are allocated to the product itself.
For example, under ABC managers found out that low volume and complex products often results in additional and increasing cost on these products. These managers started to make otter decisions and changed their strategy based on knowledge gained from ABC. They recognized that high-competitive and low complex products are more competitive.
In contrast, Lean Accounting does not focus on the product itself, but rather on the overall value chain. This means that all activities needed to produce a product/service are taken into account.
2. Financial Reporting
In financial reporting, the Generally Accepted Accounting Principles (GAAP) always have to be pursued. But comparing the three ways of accounting on this point, it is found that only Lean Accounting follows GAAP. ABC and Time Driven ABC do not meet the GAAP-requirements.
3. Operational Control and Improvement
The ABC method notes that both financial and nonfinancial (especially quality and time-related) measures play an important role in operational control and improvement, but this method emphasizes on the financial measures. ABC empowers prioritizing improvement efforts and also it facilitates the assessment of activities’ performance.The ABC method often results in an overestimation of both products and customer costs because of unavoidable and unused capacity. Since Time Driven ABC was developed to try to solve this distortion, capacity plays a key role in this method. Financial Besides capacity, unit time for activities is the other key element in this method. In contrast to ABC, Time Driven ABC does not emphasize on financial measures as a driver for improvement; time consumption is the only element in Time Driven ABC that creates costs. Also in Lean Accounting, the emphasis is not on financial measures but rather on the non-financial ones. The focus in Lean Accounting is on direct quality, quantity and time knowledge and continuous improvement of processes is an important element of cost management in Lean Accounting.
Source: Monroy, C.R, Nasiri, A. and M.A. Peláez. (2012) “Activity Based Costing, Time-Driven Activity Based Costing and Lean Accounting: Differences among three accounting systems”. 6th International Conference on Industrial Engineering and Industrial Management.