Question

What is activity based costing vs lean costing?

Answer 1

Activity based Costing (ABC):-

ABC allocates overhead to multiple activity cost pools to products by means of cost drivers.A cost driver is any factor that has a direct cause effect relationship with the resources consumed.ABC allocates costs to activities first and then to the products based on the products use of those activities.ABC leads to enhanced control of overhead costs since overhead costs can be more often traced directly to activities.ABC leads to better management decisions by providing more accurate product costs.ABC can be expensive to use as identifying activity is a costly affair.

Lean Costing:-

Lean accounting is intended to replace traditional accounting and is best suited for the companies that are well on the path to lean manufacturing.A lean manufacturing company attacks wastes in all its forms which in turn reduces cost of goods sold.Lean accounting is more real time generating cost reports on a daily basis.Lean accounting is less costly than the traditional accounting.The functions in lean accounting include eliminating non value adding procedures in accounting.