Lebanon Gasket Case Study
Creating a lean enterprise: the case of the Lebanon Gasket Company
Question: How can the accounting function better serve our senior management team’s strategic planning, control, and decision-making efforts within its current lean environment? Specifically, address issues related to capacity planning, aligning employee incentives with lean goals, and product mix decision making.
In contrast with standing costing system, lean accounting proposes the value stream as a single cost collector. A value stream is defined as “all the activities required to bring a product or service from conception through to the customer, including related information processing, logistics, and the collection of money” (van der Merwe and Thomson, 2007, p.29). Lean organizations dedicate resources to value stream. Costs are recognized as they incurred rather than being inventoried and matched to revenues(G. K. DeBusk and C. DeBusk, 2012a).
Lean accounting is definitely important to senior managers in terms of capacity planning, aligning employee incentives with lean goals, and product mix decision making.
A Box Score Report emphasizing on unused capacity and practice of direct costing for capacity planning is used for capacity planning under lean accounting system. Exhibit 1 shows a Box Score Report for a hypothetical value stream.
Exhibit 1: Box Score Report for a hypothetical value stream
Adapted from G. K. DeBusk and C. DeBusk, 2013, p.47.
Exhibit 1 demonstrates the capacity of production resources that are necessary in satisfying changing demand of the products. Three elements of capacity accounting are productive capacity, non-productive capacity, and available capacities. According to G. K. DeBusk and C. DeBusk (2013), the Box Score Report can be used to do “what-if” analysis and analyze unused capacity for future exploitation. For instance, they may figure out that the nonproductive capacity would drop to 5 percent (15% - 10%). Then they could discover in which way they can
Question: How can the accounting function better serve our senior management team’s strategic planning, control, and decision-making efforts within its current lean environment? Specifically, address issues related to capacity planning, aligning employee incentives with lean goals, and product mix decision making.
In contrast with standing costing system, lean accounting proposes the value stream as a single cost collector. A value stream is defined as “all the activities required to bring a product or service from conception through to the customer, including related information processing, logistics, and the collection of money” (van der Merwe and Thomson, 2007, p.29). Lean organizations dedicate resources to value stream. Costs are recognized as they incurred rather than being inventoried and matched to revenues(G. K. DeBusk and C. DeBusk, 2012a).
Lean accounting is definitely important to senior managers in terms of capacity planning, aligning employee incentives with lean goals, and product mix decision making.
A Box Score Report emphasizing on unused capacity and practice of direct costing for capacity planning is used for capacity planning under lean accounting system. Exhibit 1 shows a Box Score Report for a hypothetical value stream.
Exhibit 1: Box Score Report for a hypothetical value stream
Adapted from G. K. DeBusk and C. DeBusk, 2013, p.47.
Exhibit 1 demonstrates the capacity of production resources that are necessary in satisfying changing demand of the products. Three elements of capacity accounting are productive capacity, non-productive capacity, and available capacities. According to G. K. DeBusk and C. DeBusk (2013), the Box Score Report can be used to do “what-if” analysis and analyze unused capacity for future exploitation. For instance, they may figure out that the nonproductive capacity would drop to 5 percent (15% - 10%). Then they could discover in which way they can
References: Van Der Merwe, A., and Thomson, J. (2007). The Lowdown on Lean Accounting, Strategic Finance, 88,8, pp.26-33. G. K. DeBusk and C. DeBusk, (2012a). The Case for Lean Accounting: Part I. Cost Management, 26,3, pp.20-24. G. K. DeBusk and C. DeBusk, (2012b). The Case for Lean Accounting: Part II. Cost Management, 26,4, pp.22-30. G. K. DeBusk and C. DeBusk, (2013). The Case for Lean Accounting: Part III. Cost Management, 26,3, pp.44-48.