Lean Accounting

I DEFINITION OF LEAN ACCOUNTING

            Lean Accountig is accounting for leaned manufacturer. It is try to move from traditional cost system and motivated step by step of lean manufacturer in a practise.

Lean manufacturing is thus an approach desigend to eliminate waste and maximize customer value. It is characterize by delivering the right product, in the right quantity with the right quality (zero defect), at the exact time the customer needs it at the lowest possible cost.

 

Five principle of lean thinking:

1. precisely specify value by each particular product
2. identify the value stream for each
3. make value flow without interuption
4. let the customer pull value from producer
5. pursue perfection

·         Value by Product

Value is determined by the customer-at very least, it is an item or feature for which the customer is willing to pay. Customer value is the diferent between realization and sacrifice. Realisation is what a customer receive. Sacrifice is what customer give up, including what they are willing to pay for the basic and special product feature, quality, brand name and reputation.

·         Value stream

The value stream is made up of all activities, both value added and non value added, required to bring a product group or service from its starting point to a finish product in the hand of customer.

·         Value flow

This approach required significant moved time and wait time as each batch move from one department to another and wait for its turn if the risk a batch in process in front of it. Lean manufacturing reduce wait and move time dramatically and allowes the production of small batch (low volume) of differing product (high varieted). The key factors in achieving this outcomes are lowers set up times and cellular manufacturing.

·         Pull value

The objective of lean manufacturing is to eliminate waste by producing a product only when it is needed and only in the quantity demanded by customer. Demand pulls product through the manufacturing process. Each operation produce only what is necessary to satisfy the demand of the suceeding operation.

·         Pursue perfection

The objective is to produce the highest quality, lowest cost product in the least amount of time. To achieve the objective, a lean manufacturer must identify and eliminate the various form of waste.

II WORKING SYSTEM OF LEAN ACCOUNTING

The numerous change in structural and procedural activities that we have describe for a lean firm also change traditional cost management practise. The traditional cost management system may not work well in the lean environment, so we need lean accounting.

Focused Value stream and traceability of overhead cost

Costing system used three methods to asign cost to individual product : direct tracing, driver tracing and allocation.  Of the three methods, the most accurate is direct tracing thus it is prefered offer the other two methods. In the lean environment, many overhead cost asign to product using either driver tracing or allocation are now directly traceable to product.

Product costing

Because of multi-task asignment, cross training and redeployment of other support personel, most support cost are exclusive to focus value stream and are thus assigned to a product using direct tracing. One consequent of increasing directly traceable cost is to increase the accuracy of product costing.

Value stream product cost = total value stream cost of period 

                                                    Unit shipped of period

Value stream reporting

Cost are collected and reported by value stream. Cost outside the value stream (sustaining cost) are reported in a separated colums. The revenue and cost reported are the actual revenue and cost for the week. To avoid distorting the current weak performance inventory reduction are reported separately from the value stream cntribution.

Decision making

Using the average product cost for a value stream means that the individual product cost are not known. In reality a fully specified and accurate product cost is not needed for many decision. Waste can be eliminate at the activity and process level without knowing a product cost.

Performance measurement

The lean control system used the boxes score card that compared operational capacity and financial matrix with prior week with a future desired state.

For the operational mesure, unit sold per person is a partial labor productivity measure and is there for a measure of labor efficiency. The scorecard measure are expected to improve over time and to be helpful in managing and  bringing about improvement.

III ADVANTAGES AND DISADVANTAGES OF LEAN ACCOUNTING

Advantages:

• Reduce cost
• High efficiency
• Maximize using of TQM (Total Quality Management)
• Good quality product
• Increase the competitiveness
• Safety from loss sales

Disadvantages:

• Need a multi-skilled labor
• High pressure of labor
• Need a good relation with supplier

 

 

 

Theory of Constraints

1. The Definition of Teorhy of Constraint (TOC)

This theory developed by Eliyahu M. Goldratt. He develope this management philosophy because he believe no one perfect in the world. It mean, in a organization, we always find some constraint, trouble, or something mistakes that make the inertia of organization. This theory focus to looking for how to minimize the constraint in one company, and maximize efficientcy of every resources in company. TOC is similar to JIT in that it has elements of a philosophy as well as practice.

So, i can define, TOC is a theory to assign the efficientcy to use all the resource of company with minimize the constraint in the company to make a better profit.

 

2. The Basic Principle of TOC

There are 3 basic principle of TOC :

1.      Convergence

If  a company more complex, there are simple one to direct. It mean, if company can directing of management function well, the contstaint will be decrease because of the good system that we developed.

 

2.      Consistency

This principle mean, the good company is the company which can keep the consistency of product in quality and quantity of production.

 

3.      Behavior

The last one of basic principle is behavior. It mean, every workers or components in the company must be respect  each other, with this condition, it can make a stability to work.

 

3. The Global Measurements of TOC

Throughput is defined as sales dollars less direct materials in the products sold. More specifically, direct materials include raw materials, components and sub-components that are part of the products that are sold. Conceptually, throughput is money flowing into the system.

Inventory = assets or investment in the terminology of TOC since, everything is for sale. However, TOC product inventory (inventory in the traditional accounting sense of the term) includes only the cost of direct materials that remain unsold in the form of raw materials, work in process and finished goods. Note that the TOC definition of product inventory does not include direct labor or factory overhead costs, only direct material costs.

Operating Expense is defined as the costs of converting the inventory into throughput. Operating expense includes all costs other than direct materials, direct labor and factory overhead, as well as selling and administrative costs. Conceptually, operating expense is the money flowing out of the system.

 

4. The Five Continuous Steps To Obtain The Goal

Although the terminology associated with the theory of constraints is different from the traditional accounting terminology, the key concept of TOC is relatively easy to understand. The idea is that the sum of the local, or subsystem optimums does not equal the system optimum.

Maximizing throughput, according to the theory of constraints, involves the following five steps:

a. Identify the company's most binding constraint.

The factor that places the greatest limitation on increasing throughput. This constraint may be external or internal. For example, external constraints may include a weak consumer demand, or a shortage of quality raw materials. Internal constraints may be capacity related.

b.Exploit the internal constraints by maximizing the flow of work through the   constraint.

With save of labour hour in internal constraint, it can make increase of throughput, because it make a save money for the company. External constraints, such as weak demand are exploited by increased advertising, market promotion and developing new distribution channels, direct sales, mail order, and wholesalers. A constraint caused by a shortage of quality raw materials is exploited by actions such as locating new vendors and certifying vendors that meet standards concerning quality and delivery schedules.

c.Subordinate and synchronize the other internal constraints with the most binding constraint.

This means to keep them working at the pace of the most binding constraint. The idea is to balance the flow of work, not try to balance the plant. A balanced plant refers to a theoretical situation where there is equal capacity at each operation in the plant. In the theory of constraints, a balanced plant is viewed as impossible because of the variability associated with the various processes involved.

d. Elevate the performance of the constraint

 The performance measurements should emphasize the efficiency and effectiveness of the total operation, or total system, not the efficiency of individual operations, or subsystems. And the goal of course  to maximize throughput.

e. if in any of the above steps the constraint has shifted, go back step 1

These are called the 5 Steps of TOC and provide the foundation for many of TOC’s generic solutions, which include, the management of processes, inventory, supply chains, product development and projects (single and multiple), personnel and decision-making.

Although the 5 Steps of TOC can be applied to every process at every level in an organization, which is how TOC is frequently often implemented, the true power - and results - comes from:

• Understanding the interdependencies between and across processes that     contribute to delivering a product or service,

• Understanding the impact that those interdependencies and normal variability have on their combined, overall performance, and

• Appropriately buffering for interdependencies and normal variability so that that  performance can be predictably and consistently high.

 

 

5. TOC Problem To Applied

a.       Find the constraint needed to maximize throughput.

It mean the organization sometimes difficult to find out the constraint, cause so many thing procedural or system that build organization. If we can find the constraint, in that time we can use “the five continious step of TOC”.

b.      Determine the optimum product mix with overlapping constraint.

Company is a big structural divided many department, is hard if we try to determine optimum product mix that can we produce, because of that, we need one more system to determine the optimum product mix, and it will barrier to apllies and implement the TOC. 

Accounting System

Accounting system is :

Form organization, note, and coordinated report is such a manner to provide information required by management utilize to faciltate management of company.

the basic elements of accounting systems is :

1. Form

2. Note : journal, general and subsidiary ledger

3. Report

1. Form

form represent first document which used to record the happening transaction.

2. Journal

journal is the first accounting ote which use for note and classify financial data and others data.

3. General Ledger

general ledger consist of acountas that used to summarize financial data which have been note previously in journal.

4. Subsidiary Ledger

if financial data which classified in general ledger needed its furthermore detail, can be formed subsidiary ledger.

5. Report

the last results of accounting procces is financial statement like balance sheet, income statement, cash flow statement and equity changes income.

Target of public work of compilation system

1. provide information to new business activity

2. improve information for developed business

3. improve accounting control and intenal control

4. decrease the expense of clerical activity.

 the final purpose of  accounting system is to provide the information about all of accounting source. it can show to management the condition of internal financial that management need to make some decision.