Strategos Lean Briefing

The Newsletter of Lean Manufacturing & Factory Science

30 January 2004

Volume Adjusted Costing

and

Eluding The Death Spiral of Overhead

Our previous Briefing explored Product Costing and the distortion inherent in traditional accounting. In "The Death Spiral of Overhead" we show how this warping of overhead cost can lead to an agonizing corporate death. Distortion leads to product proliferation and even more distortion in a slow, sinister cycle of deteriorating profitability; a cycle that plays out over decades.

Then, Glen Navis, formerly of Deere & Co., describes "Volume Adjusted Costing" (VAC). In many situations where volume is a primary cost driver, it gives most of the accuracy of ABC with less complexity and far more transparency. It is simple, easy and fast to implement. VAC drives behaviors that, in turn, actualize strategy.

Our next issue wraps up the series on accounting. Then, we go back to a more technical topic: Process and Value Stream Mapping.

All the best,

Quarterman Lee

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