ABC.ppt

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© 2004 Superfactory™. All Rights Reserved.
Activity Based Costing
and
Lean Accounting
Superfactory Excellence Program™
www.superfactory.com

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Outline
 What is Activity Based Costing?
 Cost Accounting Systems
 Traditional Cost Systems
 Activity Based Costing
 Implementing ABC
 Benefits & Limitations of ABC
 Lean Accounting

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What is Cost Accounting?
 Cost Accounting involves the measuring, recording, and
reporting of product costs
 Both the total cost and the unit cost of products are
determined

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Objective of Cost Systems
 To provide product unit cost information for product pricing,
cost control, inventory valuation, and financial statement
presentation

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What Does A Cost System Do?
 Object of product costing is to:
 provide inventory costs for external reporting
 show consumption of resources (costs) caused by things
the firm makes for decision making

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What Does A Cost System Do?
 Object of product costing is to do what?
 To provide inventory costs for external reporting
 To show consumption of resources (costs) by things the
firm does (actions, choices)
 Which method does that “best”?
 One that does not result in material errors in external
reporting
 One that tracks significant costs accurately to products or
services as needed for decision making.

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Is Better Cost Allocation the Answer to Process
Improvement?
 One way to improve allocation is to use ABC (activity based
costing)
 This increases the number of cost pools used and allows the use
of non unit based cost drivers as well as unit based ones

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Is Better Cost Allocation the Answer to Process
Improvement?
 An alternative approach to improved allocation through
ABC is to do away with the problem (ABM or activity
based management).
 Conduct an ABC analysis.
 Eliminate non value added activities.
 Convert significant indirect costs into direct costs.
 Simplify the product design and manufacturing
processes.
 Conduct another ABC analysis….

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Cost Accounting Systems
 Job Order Cost System
 Process Cost System

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Job Order Costing
 Costs are assigned to each job or batch
 Each job or batch has its own distinguishing characteristics
and related costs
 Objective: To compute the cost per job

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Process Cost System
 Accumulates and accounts for product-related costs for a
period of time
 Used when a series of connected manufacturing processes
produce a large volume of similar products
 Costs are accumulated by and assigned to departments or
processes

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Traditional Cost Systems
 Although it may be impossible to determine the exact cost of
a product or service, every effort is made to provide the best
possible cost estimate
 The most difficult part of computing accurate unit costs is
determining the proper amount of overhead cost to assign to
each product, service, or job

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Traditional Product Costing
Costs
Consumed by:
Products
Allocation:
Costs are
allocated to
products based
on assumed
linkages or
convenient
alternatives such
as direct labor
hours
1. Focus on the product in the costing
process.
2. Costs are traced to the product with
assumption to consuming of the
resources in proportion to the
volume produced.
3. These volume drivers, fails to
account for product diversity in the
form of size or complexity.
4. There is not a direct relationship
between production volume and
cost consumption.

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Traditional, Volume-Based Product-Costing System
 Aerotech produces three complex printed circuit boards
referred to as Mode I, Mode II, and Mode III.
 The following information is obtained from company
records:
Mode I Mode II Mode III
Production:
Units 10,000 20,000 4,000
Runs 1 of 10,000 4 of 5,000 10 of 400

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Additional information includes:
Direct materials 50.00
$ 90.00
$ 20.00
$
Direct labor (hr/board) 3 4 2
Setup time (hr/run) 10 10 10
Machine time (hr/board) 1 1.25 2
$ 90.00
$ 20.00
$
Direct labor 60.00 80.00 40.00
Manufacturing overhead 99.00 132.00 66.00
Total 209.00
$ 302.00
$ 126.00
$
Manufacturing overhead is determined as follows

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Units produced 10,000 20,000 4,000
Direct labor (hr/unit) 3 4 2
Total hours 30,000 80,000 8,000
Total hours required 118,000
Budgeted manufacturing overhead $3,894,000
Budgeted direct-labor hours 118,000
= $33 per hour
Direct labor (hr/unit) 3 4 2
Overhead rate per hour 33
$ 33
$ 33
$
Overhead per unit 99
$ 132
$ 66
$

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With these product costs, Aerotech established target selling prices
(Cost × 125%).
$ 90.00
$ 20.00
$
Direct labor 60.00 80.00 40.00
Manufacturing overhead 99.00 132.00 66.00
Total 209.00
$ 302.00
$ 126.00
$
Cost per unit 209.00
$ 302.00
$ 126.00
$
Target selling price 261.25 377.50 157.50
209.00 x 1.25

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Traditional Costing Systems
 Often the most difficult part of computing accurate unit costs is
determining the proper amount of overhead cost to assign to
each product, service, or job.
 Unlike direct materials and direct labor costs which can usually be
easily traced to the product, overhead is an indirect or common
cost that generally cannot be traced.

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The Need for a New Costing System
 Companies that continue to use plantwide predetermined overhead
rates based on direct labor or machine hours, where the correlation
with overhead no longer exists, experience significant product cost
distortions.

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Overhead Costs
 A single predetermined overhead rate is used throughout the
year for the entire factory operation for the assignment of
overhead costs
 In job order costing, direct labor hours or costs are commonly
used as the relevant activity base
 In process costing, machine hours are commonly used as the
relevant activity base

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Activity-Based Costing
 Allocates overhead to multiple activity cost pools and assigns
the activity cost pools to products by means of cost drivers
 An activity is any event, action, transaction, or work sequence
that causes the incurrence of cost in producing a product or
providing a service
 A cost driver is any factor or activity that has a direct cause-
effect relationship with the resources consumed

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 Allocates costs to activities first, and then to the products,
based on the product’s use of those activities
 Activities consume resources
 Products consume activities

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Activity Based Costing
Costs
Consumed by:
Consumed by:
Products
Activities
Resource Drivers:
Costs are assigned to
activities based on
effort expended
Activity Drivers:
Activity costs are
assigned to products
on unique
consumption patterns
1. ABC focuses on activities in the
costing process.
2. Costs are traced from activities to
products, based on the product’s
demand for these activities during
the production process.
3. ABC theory contends that,
virtually all of a company’s
activities exists to support
production and delivery of
services, they should all be
included as product costs.

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ABC is extremely valuable to an organization, because it provides information on
the range, cost and consumption of operating activities. Specific benefits of and
strategic use for this information are:
• More accurate product costs enable better strategic decisions regarding:
• Product pricing
• Product mix.
• Make vs. Buy
• Investments in R&D, Process automation, etc..
• Increased visibility of the activities performed enables a company to:
• Focus more on the management of activities, such as improving the efficiency of high
cost activities.
• Identify and reduce non-value added activities.

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 ABC allocates overhead in a two-stage process:
 Overhead is allocated to activity cost pools, each of
which is a distinct type of activity,
 Overhead in the cost pools is assigned to products using
cost drivers which represent and measure the number of
individual activities undertaken or performed to produce
products or render services.

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 Not all products or services share equally in activities.
 The more complex a product’s manufacturing operation, the
more activities and cost drivers it is likely to have.

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Activity-Based Costing System
Overhead Costs
Products
Assembly
Cost Pool
Numbe
r of
Parts
Inspecting
and
Testing
Cost Pool
Numbe
r of
Tests
Painting
Cost Pool
Numbe
r of
Parts
Super-
vising
Cost Pool
Direct
Labor
Hours
Ordering
and
Receiving
Materials
Cost Pool
Numbe
r of
POs
Setting
Up
Machines
Cost Pool
Numbe
r of
Setups
Machining
Cost Pool
Machin
e Hours

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Unit Costs under ABC
Activity-based costing involves the following steps:
1 Identify the major activities that pertain to the manufacture of
specific products and allocate manufacturing overhead costs to
activity cost pools.
2 Identify the cost drivers that accurately measure each activity’s
contributions to the finished product and compute the activity-based
overhead rate.
3 Assign manufacturing overhead costs for each activity cost pool to
products using the activity-based overhead rates (cost per driver).

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Computing Overhead Rates
 Availability and ease of obtaining data relating to the activity cost
driver is an important factor that must be considered in its
selection.
 The activity-based overhead rate is computed as shown below:
Estimated
Overhead per
Activity
Expected Use of
Cost Drivers per
Activity
Activity-based
Overhead Rate
 =

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Setting OH Rates: Choices of Level of Aggregation
 Plantwide rate: simplest but most subject to distortion when
products vary in their use of resources
 Departmental rates: more complex but subject to distortion
when costs that are not unit driven are substantial and products
use these costs differently
 Activity Based Rates: more complex and potentially more
accurate

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Using A Plantwide Rate
Mixing Forming Packaging
Inspection Engineering
Product 1 Product 2
Total OH
All products
pass through
the same
departments
& use the same
resources
in the same
way in each
OR
overhead costs
are small

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Using Departmental Rates to Apply Overhead
Mixing Forming Packaging
Inspection Engineering
Product 1 Product 2
Not all
products
pass through
the same
departments
But when
they do,
they use
the same
resources
in the same
way in each
Thus, an
inspection in
mixing is the
same for per unit
of mixing cost
driver for all products

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 Productive/Service Costing 58%
 Process Analysis 51%
 Performance Management 49%
 Profitability Assessment 38%
 Value-Based Management 18%
Primary Objective
Who Uses ABC?

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• Public Sector 40%
• Service 24%
• Manufacturing 24%
• Consulting 11%
Industry
Who Uses ABC?

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Activity-Based Costing - Step 1
 Identify the major activities that pertain to the manufacture of
specific products and allocate manufacturing overhead costs
to activity cost pools

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UNIT-LEVEL ACTIVITES
The work efforts that transform resources into individual products and resources
CUSTOMER- LEVEL ACTIVITES
Performed to meet the needs of specific customers
BATCH-LEVEL ACTIVITES
Manufacturing or service technology that affect multiple units of activity equally and
simultaneously
PRODUCT - LEVEL ACTIVITES
Support specific products or service lines
FACILITY-LEVEL ACTIVITIES
Support all of the organizations processes

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INTERVIEW OR
PARTICIPATIVE
APPROACH
ABC teams include or
interview operating
employees.
RECYCLING
APPROACH
Reuses documentation
of processes used for
other purposes.
TOP DOWN APPROACH
ABC teams of middle-
management or above
develop the activity
dictionary.

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Activity-Based Costing – Step 2
 Identify the cost drivers that accurately measure the activities
consumed and compute the overhead rate

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The ABC teams should gather data on the costs of all
the activities identified in Step 1.
Examine
accounting
records for
recorded cost
information.
Ask employees to
provide
information on
the time they
work on various
activities.

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When estimating the cost of
an activity, only the costs
associated with the product
should be used (practical
capacity). The cost of
“unused capacity” should
not be applied to products.
EXAMPLE
Suppose we rent a 1,000
square foot warehouse for
$1,000 per month. Only 800
sq. ft. are used to store
Product A. The rest of the
warehouse is “unused”.
How much rent cost should be
allocated to Product A?

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20%, or $200 should
be assigned to
“unused capacity”
80%, or $800
should be assigned
to Product A

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EXAMPLE #1
XCo has 4 employees in its Quality Control Dept. Salaries and costs
for the department total $360,000 per year. XCo produces 500,000
units of product a year. What is the appropriate activity, # of
employees or units of product? What is the cost-driver rate?
EXAMPLE #1
The proper activity in this case is the # of units produced.
The cost-driver rate would be:
$360,000 ÷500,000 units = $.72 per unit
Two pieces of
information are
required to compute
the cost-driver rate:
•Activity Cost
•Activity Volume
Activity
Cost
÷
Activity
Volume
=
Cost-Driver
Rate

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EXAMPLE #2
XCo has a customer service center where
customers can call to ask questions. Customers
pay a fixed fee for each call they make to the
service center. In addition, other XCo
departments also use the service center. It costs
XCo $1,260,000 a year to operate the center. The
center receives 120,000 calls per year. The center
handles 1,000,000 minutes of calls.
What is the appropriate cost driver; total
minutes per call or number of calls?
What is the cost-driver rate?
EXAMPLE #2
Since customers are charged “per call”,
the proper activity in this case is the # of
calls handled by the center.
The cost-driver rate would be:
$1,260,000 ÷120,000 units = $10.50 per
call

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 Assign overhead costs for each activity cost pool to products
using the overhead rates

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1. Identify all
the activities
related to a
given product
or service.
2. Determine
how many
units of each
activity are
used per unit
of product.
3. Assign costs
to products
using the cost-
driver rates for
each activity

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Example: Yazz, Inc. produces 130,000 units of Product A and 400,000
units for Product B. Using the following cost information, how
much overhead should be allocated to Product A?
Activity Cost-Driver Base
Cost-Driver
Rate
Factory Floor Space Square Footage 50.000
$ 20,000 Sq. Ft.
Electricity Kilowatts 0.050
$ 15,000 KW
Water Gallons 0.160
$ 80,000 Gal.
Quality Control Units Inspected 0.850
$ 135,000 Units
Packaging - Inner Ounces of popcorn 0.025
$ 270,000 Oz.
Packaging - Outer Boxes 1.250
$ 135,000 Boxes
Resources Used by
Product A

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Activity
Cost-Driver
Base
Cost-Driver
Rate Cost Assigned
Factory Floor
Space
Square
Footage
50.000
$ 20,000 Sq. Ft. 1,000,000.00
$
Electricity Kilowatts 0.050
$ 15,000 KW 750.00
$
Water Gallons 0.160
$ 80,000 Gal. 12,800.00
$
Quality Control Units
Inspected
0.850
$ 135,000 Units 114,750.00
$
Packaging - Inner Ounces of
popcorn
0.025
$ 270,000 Oz. 6,750.00
$
Packaging -
Outer
Boxes 1.250
$ 135,000 Boxes 168,750.00
$
Total Cost Assigned to Product A 1,303,800.00
$
Resources Used
by Product A

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Activity-Based Overhead Rate
 Estimated Overhead Cost Per Activity /
 Expected Use of Cost Drivers Per Activity

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Cost Driver
A characteristic of an event or activity that results in the
incurrence of costs. In selecting a cost driver, we must
consider . . .
Degree of
Correlation with
the cost
Cost of
Measuring the
Driver
Behavioral
Effects of Using It

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Homogeneous Cost Pools
A grouping of overhead costs in which each cost component is
increased/decreased in roughly the same way by some causal
factor (cost driver).
A homogeneous cost pool can use a
single cost driver and maintain
accuracy in cost allocation.

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Identifying and Classifying Activities
 Classification = grouping into homogeneous cost pools.
 Is this class “homogeneous”?
 Does how you classify costs matter in terms of its effect on behavior? Why
or why not?
 What advantage do managers get from an ABC system (beyond “more
accurate costs”)?
 You must understand the business before you can classify costs
into “like” groups.

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How Do You Decide on What Belongs in Which Pool
and How Many to Use?
 In real life, how does one know what activity causes what costs?
 What does this imply about who should be involved in product costing?
 What do you do if you cannot identify a cause and effect relationship to
use to assign costs?
 Do all costs have to be assigned to product?
 Externally?
 Internally?
 Benefits received? Ability to bear? The peanut butter approach?

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Classifying Costs into Homogeneous Groups
 Arrange costs into homogeneous cost pools for assignment to
product. Your goal is the smallest number of pools consistent with
"homogeneous" cost pools.

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Costs to be Grouped
 Costs to reset machinery for different packaging card sizes
 Costs for plant security
 Costs for receiving raw materials and supplies and placing them in
inventory.
 Costs for storing inventory
 Costs to maintain production equipment
 Costs for employee lunch services (subsidized cafeteria for direct
labor)
 Costs to issue raw materials for batches
 Costs for purchasing raw materials and supplies

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Costs to be Grouped Continued
 Costs for engineers to design process modifications for products
 Depreciation on machinery
 Depreciation on packaging equipment
 Building heat, light, air conditioning, etc.
 Equipment power costs
 Inspection after forming
 Inspection after final packaging

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How big does a group of “like” costs have to be
to “deserve” its own category?
Does the cost of gathering the data matter?

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Storyboarding
A procedure used to develop a detailed process flow chart, which
visually represents activities and the relationships among
activities.
Useful in creating ABC cost pools and in tracing interrelationships
for ABM.

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Process for Allocation of Indirect Costs
 Group them into “like” pools
 Use a cause and effect relationship with a cost driver for
each to assign the costs to product (if possible)
 ABC systems use more pools than a departmental rate system

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Assigning Costs to Activity Centers
Assign costs to the activity centers
where they are accumulated while
waiting to be applied to products.

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Selecting Cost Drivers
Assign costs from the
activity center to the
product (or other cost
object) using
appropriate cost
drivers.
When selecting a cost driver
consider:
 The ease of obtaining
data.
 The degree to which the
cost driver measures
actual consumption by
products.

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Possible Hierarchy for Pooling Costs Into “Like”
Groups
 Unit based costs
 What would be included here?
 What makes these change (drives these costs)?
 Batch based costs
 Product based costs (or customer based in marketing)
 Facility based costs

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Benefits of Activity-Based Costing
 ABC leads to more activity cost pools with more relevant cost
drivers
 ABC leads to enhanced control of overhead costs since
overhead costs can be more often traced directly to activities
 ABC leads to better management decisions by providing more
accurate product costs, which contributes to setting selling
prices that will achieve desired product profitability levels

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Benefits of ABC
 ABC leads to better management decisions. More accurate
product costing helps in setting selling prices and in deciding to
whether make or buy components.
 Activity-based costing does not, in and of itself, change the
amount of overhead costs.

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Limitations of ABC
 ABC can be expensive to use, as a result of the higher cost of
identifying multiple activities and applying numerous cost
drivers
 Some arbitrary overhead costs will continue, even though
more overhead costs can be assigned directly to products
through multiple activity cost pools

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ABC: Some Key Issues
The Past
 Small number of products
which did not differ much
in required manufacturing
support.
 Labor was dominant
element in the cost
structure.
The Present
 Numerous products with
more and complicated
production requirements.
 Labor is becoming an ever
smaller part component of
total production costs.

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When to Use ABC
 Product lines differ greatly in volume and manufacturing
complexity
 Product lines are numerous, diverse, and require differing
degrees of support services
 Overhead costs constitute a significant portion of total costs
 The manufacturing process or the number of products has
changed significantly
 Production or marketing managers are ignoring data provided
by traditional cost systems and are using bootleg cost
information to make pricing decisions

68
ABC: Some Key Issues Leading to Increased Use
 Use of ABC allows more costs to be directly traced to products
 This reduces the errors in product costs generated by less-than-
totally-accurate allocations

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When Is ABC Most Beneficial?
 When products differ significantly in their use of firm resources
 Does ABC have to be limited to production costs?
 When these resources (overhead ) are a significant cost (thus
when labor is relatively small)
 What contributes to different usage of resources?
 Product diversity (functions used, inspections required, batch
sizes,….)
 Production complexity
 Customer diversity (order sizes, distribution requirements

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Both Volume and Complexity Can Affect Costs
 Processing orders
 Number of different forms (complexity)
 Electronic or manual processing
 Assembling product
 Number of units
 Number of unique parts
 Number and type of steps (unique processes)
 Can design affect this?

71
Symptoms of the Need for a
More Complex Cost System
 The outcomes of bids are difficult to explain
 Competitors’ prices appear unrealistically low
 Products that are difficult to produce show high profits
 Operational managers want to drop products that appear
profitable
 Departmental managers do not believe the cost reports
and/or are using their own accounting system

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Symptoms of the Need for a
Different Cost System
 The firm has a highly profitable niche all to itself
 Customers do not complain about price increases
 Competitors send you business
 Sales are increasing but profits are not
 Managers don’t have the information they need to address
problems
 Product costs change because of changes in financial reporting
regulations

73
An ABC Example: Setting Rates
Cost Pool Cost Cost driver Activity
level
Rate
Engineering $500,000 Hours spent 20,000
Setups $450,000 No. of setups 800
Machining $1,000,000 Machine hrs 100,000
Inspections $400,000 Inspection
hrs
10,000
Space $125,000 No. of
facilities
Utilities $90,000 No. of
facilities
Divide cost by
activity level

74
An ABC Example: Setting Rates
Cost Pool Cost Cost driver Activity
level
Rate
Engineering $500,000 Hours spent 20,000 $25/hr.
Setups $450,000 No. of setups 800 $562.5/setup
Machining $1,000,000 Machine hrs 100,000 $10/MHR
Inspections $400,000 Inspection
hrs
10,000 $40/insp.
Space $125,000 No. of
facilities
?
Utilities $90,000 No. of
facilities
?

75
Activity-Based Management
 ABM is an extension of ABC, from a product costing system to
a management function, that focuses on reducing costs and
improving processes and decision making

76
Resources
Functions
Products
Efficiency
Analysis
Performance
Analysis
Functional-Based
Management
Model
Cost View
Operational View

77
Resources
Activities
Products &
Customers
Driver
Analysis
Performance
Analysis
Activity-Based
Management
Model
Cost View
Operational View

78
ABM: What and Why?
 Activity based management = using knowledge of costs gained by
ABC analysis to make pricing and product-mix decisions, to identify
and select cost reduction and process improvement projects, including
ones relating to product design
 Knowing what costs are related to which product allows better
analysis of:
 which markets to emphasize
 which products to consider for CIPs (cost improvement programs)
 which customers to target for changes in pricing or service
delivery

79
ABC in Service Industries
 Identifying activities, cost pools, and cost drivers are similar
to manufacturing industries
 A larger proportion of overhead costs are facility-level costs,
that cannot be directly traced to specific services rendered by
the company
 Although initially developed and implemented by
manufacturing companies that produce products, ABC has
been widely adopted in service industries.
 The general approach to identifying activities, activity cost
pools, and cost drivers is the same.
 Labeling activities as value-added and nonvalue-added, and
trying to reduce or eliminate nonvalue-added activities is just
as valid.

80
Lean Accounting
 Lean Accounting is intended to replace traditional accounting and
measurement systems; it is not intended be an additional
analysis. Lean Accounting is right for companies that are well on
the path toward lean manufacturing.
 Lean Accounting is more than a set of tools relating to
measurement, capacity usage, value, and continuous
improvement. Together these tools become a lean business
management system that is radically different from traditional
management.

81
Lean Accounting – Element 1
 Performance measurements that motivate lean actions - at the
cell level, the value stream level, and at the plant or corporation
level.

82
 The elimination of most accounting and control transactions
through the elimination of the need for them.
 They (accounting transactions, shop floor control, inventory
records, labor tracking, etc.) are needed in traditional
companies because processes are out of control.
 In lean companies we can bring processes under control and
eliminate the need for the cost accounting, inventory control,
etc. Lean performance measurements become the primary
control manager.

83
 A valid assessment of the financial impact of lean manufacturing
improvement.
 Many companies are looking for short-term cost cutting to
come from their lean efforts.
 They are usually disappointed. Lean manufacturing does not
cut costs; it turns waste into available capacity.
 The financial impact comes as you make decisions on how to
use this capacity (and the cash flow from reduced inventory).
 These are strategic decisions. Lean Accounting uses a specific
tool for understanding the impact of lean changes on the
company financially.

84
 Replacement of standard costing with costing of the value stream.
 As a company seriously applies lean thinking they become less
like a job shop and more like a process manufacturer.
 Value stream costing becomes more relevant and "accurate"
for managing the value stream.
 This step (and its a big one for many companies) eliminates
almost all of the wasteful transactions associated with
traditional cost accounting. Plus it gives the value stream
manager (and other interested parties) more valid information.

85
 Decisions that used to involve standard costs now use value
stream profitability and contribution margin.
 These decisions include pricing, profitability, make/buy, new
product introduction, product and customer rationalization,
etc.
 This aspect is similar to throughput accounting in that it
requires an understanding of flow through the bottleneck (or
constraint) operations within the value stream.

86
 Driving the business from customer value. This is what we are
striving towards.
 QFD and target costing to drive our business from customer
value and not from cost.
 We need a profound understanding of how we create value for
the customer; we need an understanding of where our costs
are in the value stream; we compare where we create value
with where we expend cost; and we initiate kaizens (and the
like) to bring value and cost into line.
 The best way to reduce cost is, of course, to increase sales.

87
Lean Accounting – The Lean Transition
 An important role for finance and accounting people in the lean
organization is to actively support and participate in the transition
to a lean enterprise.

88
Lean Accounting – Management Accounting
 A cornerstone of the lean business is performance measurement.
We have few measurements that are focused on the creation of
customer value and the achievement of business strategy.
 Measurements are primarily non-financial and are established for
cells, value streams, plants, and corporations. Simplified costing
and financial planning methods support these measurements.

89
Lean Accounting – Business Management
 To manage the business we need timely and valid information.
Decisions are made using lean principles, not the traditional mass
production mentality.
 Replace the department-focused structure with an organization
that is focused on customer value and the value streams. Drive
the business from value to the customer.

90
Lean Accounting – Operational Accounting
 The problems of standard costing need to be addressed. Standard
costing is an excellent costing method for traditional mass
production; but standard costing is actively harmful to lean
organizations.
 Replace standard costing with value stream costing. Value stream
costing eliminates most transactions and does not rely on
allocation and full absorption of costs.

91
Lean Accounting – Financial Accounting
 While the majority of Lean Accounting affects internal processes,
Lean principles are applied equally to the company’s financial
accounting. There is much waste to be eliminated.
 Finance and accounting people in the average American company
spend more than 70% of their time on bookkeeping and very little
time on analysis and improvement.

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