Academic journal article Management Accounting Quarterly

Exploring the Role of Standard Costing in Lean Manufacturing Enterprises: A Structuration Theory Approach

Academic journal article Management Accounting Quarterly

Exploring the Role of Standard Costing in Lean Manufacturing Enterprises: A Structuration Theory Approach

Article excerpt

Do mature lean manufacturers continue to use standard costing and variance analysis? The authors present a research protocol to determine if this is the case and how it compares to lean accounting theory

Although manufacturing organizations worldwide are moving rapidly to adopt lean management systems, field reports suggest that many lean manufacturers continue to use traditional standard cost accounting control systems, despite the argument by lean accounting experts that they hinder lean implementation. (1) No empirical research study has examined field practices to determine if lean accounting theory matches field practices. In this article, we present a research protocol for determining how mature lean manufacturers' use of standard costing compares to lean accounting theory. In addition, we offer perspectives to determine why mature lean manufacturers may continue to use standard costing and variance analysis.

In our study, we use a model from social systems thinking--Anthony Giddens's structuration theory (GST)--to guide the determination of nine relevant variables. We anticipate that this research protocol will lead to a better understanding of the reasons lean manufacturers retain standard costing and variance analysis and of the facilitating factors that allow some companies to discard standard costing as a control system for operations.

Standard Costing Versus Lean Accounting

Standard costing was developed to suit the needs of mass manufacturing. The mass manufacturing environment, which is characterized by high fixed-investment costs in the plant and machinery, involves production of large volumes of uniform output. To reap the economies of scale, high fixed-investment costs are spread (averaged) over volumes of units produced. Standard costing is a convenient way of costing outputs in mass manufacturing environments. Standard costs, which are predetermined unit costs, estimate the costs of the output, which then are compared with actual costs incurred to determine variances that are useful for exercising managerial control. Such controls, however, take place at aggregated levels and often weeks after actual operations, thus obscuring the cause-and-effect connections. For instance, variance reports that provide information at aggregated levels do not provide adequate information to exercise operational controls in a lean environment.

In a lean environment, operational and process controls replace managerial and financial controls at aggregated levels. Also, visual operational controls replace periodic financial controls at aggregated levels. The objective of lean is to prevent deviations from occurring in the first place and not correcting deviations that have already occurred.

Standard costing systems also create a detailed system of accounting for recording each and every transaction to trace the flow of processes through different stages of production. In a single-product environment, standard costing will be easy to maintain and can produce meaningful reports for control. In a multiproduct, lean manufacturing environment, where each process can produce a variety of products, maintaining detailed product accounts is both wasteful and cumbersome. (2) The use of standard costing in such an environment may produce volumes of variance reports that may not only be difficult to analyze but may also not provide any meaningful information to exercise control.

Further, accounting for fixed overhead costs becomes more complicated in a lean environment. Fixed costs in a lean manufacturing environment cannot be averaged over the outputs produced because of lack of uniformity in the output in the multiproduct environment. In such manufacturing systems, it becomes necessary to trace the input costs to value streams rather than a single unit of output. A value stream consists of a group or family of related products or services that employ the same process steps. …

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