If an anyone works in the accounts department in a firm which follows the lean manufacturing, likewise firm also uses standard costing, it is unavoidable for that particular business entity that its accounting and finance team shall be confronting that how the standard costing procedure is applied. Standard Costing is used by the businesses in the entire world for the purpose to monitor the performance of the manufacturing departments. It is beneficial for the firm to implement standard costing as the method of costing. It is because the standard costing tells the business information related to the losses occurs during manufacturing processes. Lean accounting usually adopts by the firm to their manufacturing processes in order to eliminate the wastages and damages occur during the manufacturing processes. The purpose of implement lean accounting is that the firm reports the losses occurs during production in its annual report, in order to document losses the firm implements lean accounting practices.
It is an old fashioned accounting system that may depict the impressive figures by the benefit of the fact that the business entities have leveraged scale economies and manufacture a particular product in bulk quantity. These old-fashioned metrics emphases on the mediocre quantity of time and labour the firm spends in the procedure of manufacturing each unit deprived of bearing in mind the panoramic picture. For instance, the business entity shall experience a diversified bottom line result if the business give elements to an excited client who shall ready to consume money in order to buy the products offered by the firm, instead of dumping the goods in the go down in order to fulfil the demand that arises by the clients of the firm in future.
The customer feedback and communication is an important aspect of lean manufacturing accounting system. More quickly the manufacturing depth. As well as the production members informed about the orders in quantity sooner they started production of the units demanded by the clients.
Issues occur in accounting for lean manufacturing firms
- The operational as well as monetary effects of the variances as well as Manufacturing Overhead absorption.
- The monetary effects of the decline in the merchandise inventory.
- Decisions are taken by the businesses and in-depth financial analysis.
- Valuation of merchandise inventory.
- Keeping compliances related to International Accounting Standards and International Financial Reporting Standards.
- Transfer pricing as well as keeping information pertains to the native governing compliance set by the government.
Advantages of Lean Accounting for the Lean Manufacturing Companies
- The businesses can generate and offer more detailed reports that contain information pertaining to increase or decrease in costs that are associated with the processes involved in activities executed by the firm in order to offer top quality products to clients and satisfies their needs in a better way.
- The lean accounting shows the savings as well as the cost incurred by the firm that may happen or misstated in the financial records by the firm, such as Wages Cost and Machinery Maintenance Cost.
- Lean Accounting helps the firm to overcome the wastages and damages that occur during its production processes. It also helps the firm to raise the profitability of the firm by controlling expenses.
Drawbacks of Lean Accounting
- When lean accounting focuses more on the value proportion of the businesses in its place of cost, then it is probable that the company might carelessly neglect the cost or neglects the problems that are related to the particular cost. Moreover, till the business entity fully achieves the good or the product line value stream, finance professionals might is not capable to suitably decide the prices of the goods or control the level of profitability generated by the firm on per unit manufactured by the firm.
- Some employees are not familiar with lean accounting procedures and methods. So, in order to train such employees, firms conduct training and development sessions for such employees in order to train them. It requires many financial resources to be invested. The firms spend money on conducting the training sessions. It increases the cost of businesses of such firms and shrinks the net income during that specific period.
- A probable the drawback of the lean accounting is that it does not calculate the cost for a single product.
Nick Katko, He is one of the innovators of Lean Accounting. Being a Chief Financial Officer in the 90 eras, Mr Nick outfits comprehensive lean accounting practices in combination with the modification in lean in the firm. He is the Co-founder of tutors help online company and the Lean Accounting Principles and Practices which publishes in the year 2007.