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PowerPoint
Presentations for
Cornerstones of
Cost Accounting
First Canadian Edition
Adapted by
George Gekas
Ryerson University
Copyright © 2013 Nelson Education Ltd.

Lean Accounting and
Productivity 17
Measurement
17-2
Lean Manufacturing 1
• Lean manufacturing is concerned with eliminating

waste in manufacturing processes
• Designed to maximize customer value
• Characterized by:
• Delivering the right product
• In the right quantity
• With the right quality (zero defects)
• At the exact time the customer needs it
• At the lowest possible cost
17-3
• Five principles of lean thinking:

1. Precisely specify value by each particular
product
2. Identify the “value stream” for each
3. Make value flow without interruption
4. Let the customer pull value from the producer
5. Pursue perfection
17-4
Value by Product
• Value is determined by the customer: It is an

item or feature for which the customer is willing
to pay
• Customer value is the difference between
realization and sacrifice
• Realization—what a customer receives
• Sacrifice—what a customer gives up
17-5
Value Stream
• Made up of all activities (value-added and non-value-
added) required to bring a product group or service
from its starting point to a finished product in the
hands of the customer
• Activities can be:
• Value added
• Non-value added
• Activities avoidable in the short run
• Activities unavoidable in the short run due to current
technology or production methods
17-6
17-7
17-8
Value Flow
• Made up all move and wait time necessary to move
resources and product batches before and after the
production process, to product completion
• Requires significant move and wait time
• Cellular Manufacturing
• Lean manufacturing uses a series of cells to produce
families of similar products
See Cornerstone 17-1

17-9
17-10
17-11
Pull System
• Lean manufacturing uses a demand-pull system

• Objective:
• Eliminate waste by producing a product only when
it is needed and only in the quantities demanded by
customers—thus, demand pulls products through
the manufacturing process
17-12
Pursue Perfection
• Waste is anything customers do not value
• Sources of waste:
• Defective products
• Overproduction of goods not needed
• Inventories of goods awaiting further processing or
consumption
• Unnecessary processing
• Unnecessary movement of people
• Unnecessary transport of goods
• Waiting
• Design of goods and services that do not meet customer needs
17-13
Lean Accounting 2
17-14
Lean Accounting 2
See Cornerstone 17-2

17-15
Lean Accounting 2
17-16
Lean Accounting 2
17-17
Productivity 3
Productivity is concerned with producing

output efficiently, and it specifically
addresses the relationship of output and
the inputs used to produce the output.
17-18
Productivity 3
Total Productive Efficiency

• The point at which two conditions are satisfied:
1. For any mix of inputs that will produce a given
output, no more of any one input is used than
necessary to produce the output driven by
technical relationships: referred to as technical
efficiency
2. Given the mixes that satisfy the first condition, the
least costly mix is chosen driven by relative input
price relationships: referred to as allocative
efficiency
17-19
Productivity 3
17-20
Productivity 3
17-21
Productivity 3
Productive Measurement
• Quantitative assessment of productivity changes
• Can be actual or prospective
• Is forward looking
• Serves as input for strategic decision making
• Allows managers to compare relative benefits of
different input combinations
17-22
Productivity 3
Partial Productivity Measure

• Measuring productivity for one input at a time
Productivity ratio = Output/Input
• Operational Productivity Measure:
• Partial measure where both input and output are
expressed in physical terms
• Financial Productivity Measure:
• Partial measure where both input and output are
expressed in dollars
See Cornerstone 17-3 17-23

Total Productivity
4
Measurement
 Productivity of organizational success is measured by
selective few relevant indicators.
 Profile measurement involves a series of critical input
measures over time compared to a base period.
 Profit-linked productivity measurement measures the
amount of profit changes attributed to productivity
changes.
 Price recovery component is the difference between
total profit change and profit linked productivity
changes.
17-24
Total Productivity
4
Measurement
• Profit-Linkage Rule:
• For the current period, calculate the cost of the
inputs that would have been used in the absence
of any productivity change, and compare this cost
with the cost of the inputs actually used.
• The difference in costs is the amount by which
profits changed because of productivity changes.
See Cornerstone 17-4 17-25

End of
Chapter 17
17-26

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PowerPoint

Copyright © 2013 Nelson Education Ltd.

• Lean manufacturing is concerned with eliminating

• Five principles of lean thinking:

• Value is determined by the customer: It is an

See Cornerstone 17-1

• Lean manufacturing uses a demand-pull system

See Cornerstone 17-2

Productivity is concerned with producing

Total Productive Efficiency

Partial Productivity Measure

See Cornerstone 17-3 17-23

See Cornerstone 17-4 17-25

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