What is true cost accounting?
Image from 3bl media
True cost accounting (also called Environmental Full Cost Accounting) is a process which tries to identify all costs associated with a product or service. This includes not only the normal costs we would associate with a product or service, bit also social and environmental costs. It attempts include what economists call externalities – something which affects society or the environment but is not included in the market price of the product. Rather than me continue, here is a short YouTube video which explains the concept in a very clear way.
Does my milkman use Activity-Based Management ideas?
Not my milkman…
Ok, the title of this post is not really correct. It should be more like “does my milkman and his supplying dairy use activity-based management principles”? First, let me explain that where I live we still have milk delivered to our door twice per week. This is quite common in Ireland and has been happened for as long as I can remember. The only difference nowadays is that deliveries are no longer daily due to refrigeration technology improvements. Second, what is Activity-based Management (ABM)? In a co-authored text book (see burnsetal.com), ABM is defined as “The
use of ABC information to identify operational and strategic improvement possibilities”. We could extend this to say that ABM assumes a business manages itself based on activities (as in Activity-based Costing) rather than functions.
So what has this to do with my milkman? Well, despite its very traditional nature, technology has made its way into milk delivery. A new website (mymilkman.ie) has been set up by several dairies in Ireland to streamline milk delivery. Through the website, I can pay for my milk, change my order, pause my order if I go on holidays and so on. And when I signed up, I got €10 credit on my account.
I asked my milkman what he thought about the site. He told me that even if he gets only 50% of customers to sign-up, he will save 8 hours work per week. Why? Well he does not have to call to the door to collect money for one thing.
So what has this to do with ABM? Well the €10 credit on my account makes me think that someone is thinking that it costs less to manage a customer if online – and I would suggest this is a customer service activity. And if we think about it, how many businesses charge us more if we do things through call centres versus online for example. So there may be many businesses out there using the ideas of ABM – managing activities. But would they all use ABC? I doubt it. For example, the dairy industry probably used some form of process costing. Nevertheless, I think many businesses may use the basic idea of managing activities they perceive as costing more/less in different ways.
What is lean accounting?
Defining lean accounting is a bit odd to me, as I don’t really buy the idea that there is a technique called “lean accounting”. Having said that, there is definitely a concept called lean manufacturing. In a nutshell, lean manufacturing implies three concepts – pull, flow and waste reduction. Pull means product is produced (or pulled) according to customer demand. Flow means product moves through a facility as efficiently as possible and no delays. Both of these should imply waste reduction.
So what does this mean for accounting. Well one thing is inventory reduction. Another may be capital investment to get things working well. Both might put accountants off! But rather than me rattle on, here is a very nice article from Forbes which explains lean accounting and some issues.
An interesting view on assets and income…
Here is a good post from worthytoshare.com which looks at a lady seeking a partner from an interesting view. It is worth a read, trust me
Accounting and public services
Accounting and accounting information is used for many purposes. Even the public sector immune to accounting information, and accounting-based controls. Recently (March 4th, 2014), BBC Radio 4 broadcast a very interesting programme (The Accountant Kings) on accounting in the provision of public services in the United Kingdom. Here is a link to the series website http://www.bbc.co.uk/podcasts/series/fileon4, and the podcast itself can be found at http://downloads.bbc.co.uk/podcasts/radio4/fileon4/fileon4_20140304-2050c.mp3.
Martin's accounting blog 