15 January 2004                       www.strategosinc.com

Volume, Variety and Product Costing

Lean Accounting

Accounting systems have a massive impact on organizational performance, particularly in large organizations. They influence everything from personal behavior to business strategy. Yet many accounting systems use a structure dating from the 1920's and a lot has changed since then.

One important issue is product costing. Most accounting systems accurately reflect overall profit and loss; many do not accurately reflect profit or loss on individual products or components. The problem is particularly severe in factories with a wide range of products and volumes.

Our new page on Product Costing presents a simple, common-sense analysis of a financial statement to demonstrate the issue. Hal Mather used this some years ago and his presentations were memorable.

Activity Based Costing (ABC) is one way to address the problems of traditional systems. But ABC has its own set of problems. In the coming weeks we will examine some of these issues. In addition Glen Navis (formerly of Deere & Co.) will show a simple alternative to ABC called Volume Adjusted Costing..

All the best,

Quarterman Lee

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