Variable Work Standard and Value Stream Mapping Service Management Test Kit (Publication Date: 2024/02)


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Discover Insights, Make Informed Decisions, and Stay Ahead of the Curve:

  • How does throughput costing differ from variable costing and absorption costing?
  • Why do variable costing and absorption costing usually report different operating income numbers?
  • Why do variable costing and absorption costing report different operating income numbers?
  • Key Features:

    • Comprehensive set of 1504 prioritized Variable Work Standard requirements.
    • Extensive coverage of 126 Variable Work Standard topic scopes.
    • In-depth analysis of 126 Variable Work Standard step-by-step solutions, benefits, BHAGs.
    • Detailed examination of 126 Variable Work Standard case studies and use cases.

    • Digital download upon purchase.
    • Enjoy lifetime document updates included with your purchase.
    • Benefit from a fully editable and customizable Excel format.
    • Trusted and utilized by over 10,000 organizations.

    • Covering: Action Plan Development, Continuous Flow, Implementation Strategies, Tracking Progress, Efficiency Efforts, Capacity Constraints, Process Redesign, Standardized Metrics, Time Study, Standardized Work, Supplier Relationships, Continuous Progress, Flow Charts, Continuous Improvement, Work Instructions, Risk Assessment, Stakeholder Analysis, Customer Stories, External Suppliers, Non Value Added, External Processes, Process Mapping Techniques, Root Cause Mapping, Hoshin Kanri, Current State, The One, Value Stream Mapping Software, Cycle Time, Team Collaboration, Design Of Experiments DOE, Customer Value, Customer Demand, Overall Equipment Effectiveness OEE, Product Flow, Map Creation, Cost Reduction, Dock To Dock Cycle Time, Visual Management, Supplier Lead Time, Lead Time Reduction, Standard Operating Procedures, Product Mix Value, Warehouse Layout, Lean Supply Chain, Target Operating Model, Takt Time, Future State Implementation, Data Visualization, Future State, Material Flow, Lead Time, Toyota Production System, Value Stream, Digital Mapping, Process Identification, Value Stream Mapping, Value Stream Analysis, Infrastructure Mapping, Variable Work Standard, Push System, Process Improvement, Root Cause Identification, Continuous Value Improvement, Lean Initiatives, Being Agile, Layout Design, Automation Opportunities, Waste Reduction, Process Standardization, Software Project Estimation, Kaizen Events, Process Validations, Implementing Lean, Data Analysis Tools, Data Collection, In Process Inventory, Development Team, Lean Practitioner, Lean Projects, Cycle Time Reduction, Value Stream Mapping Benefits, Production Sequence, Value Innovation, Value Stream Mapping Metrics, Analysis Techniques, On Time Delivery, Cultural Change, Value Stream Mapping Training, Gemba Walk, Cellular Manufacturing, Gantt Charts, Value Communication, Resource Allocation, Set Up Time, Error Proofing, Multi Step Process, Value Engineering, Inventory Management, SWOT Analysis, Capacity Utilization, Quality Control, Process Bottleneck Identification, Process Harmonization, Pull System, Visual Controls, Behavioral Transformation, Scheduling Efficiency, Process Steps, Lean Manufacturing, Pull Production, Single Piece Flow, Root Cause Analysis, Kanban System, Lean Thinking, Performance Metrics, Changeover Time, Just In Time JIT, Information Flow, Waste Elimination, Batch Sizes, Workload Volume, 5S Methodology, Mistake Proofing, Concept Mapping, Productivity Improvement, Total Productive Maintenance

    Variable Work Standard Assessment Service Management Test Kit – Utilization, Solutions, Advantages, BHAG (Big Hairy Audacious Goal):

    Variable Work Standard

    Throughput costing focuses on maximizing production and reducing waste, while variable costing and absorption costing focus on allocating overhead costs to products.

    1. Throughput costing focuses on cost reduction and efficiency, while variable costing looks at variable costs only.
    2. Absorption costing includes both fixed and variable costs, while variable costing only considers variable costs.
    3. Throughput costing helps identify bottlenecks and inefficiencies in the value stream, leading to improved throughput and reduced costs.
    4. It also allows for better decision making as managers can accurately assess the cost and impact of changes in production.
    5. By separating fixed and variable costs, variable costing provides a clearer picture of the overall cost structure.
    6. Absorption costing can result in inflated inventory values as fixed overhead costs are allocated to inventory.
    7. Unlike absorption costing, throughput costing does not account for fixed costs, which can lead to lower reported profits.
    8. Throughput costing is easier to understand and implement than absorption costing, making it a preferred choice for streamlining operations.
    9. With variable costing, pricing decisions are based on the actual variable cost per unit, leading to more accurate pricing and profits.
    10. Absorption costing can make it more difficult to compare performance and efficiency between products or processes, while throughput costing simplifies this comparison.

    CONTROL QUESTION: How does throughput costing differ from variable costing and absorption costing?

    Big Hairy Audacious Goal (BHAG) for 10 years from now:
    In 10 years, my goal for the Variable Work Standard is to become the leading global standard for business operations and costing. This goal will require widespread adoption and recognition by companies of all sizes and industries.

    The Variable Work Standard will revolutionize the way companies approach their costing methods by prioritizing flexibility and adaptability to changing market conditions. It will also promote transparency and accuracy in financial reporting.

    Throughput costing, a key component of the Variable Work Standard, differs from traditional costing methods such as variable costing and absorption costing in several ways.

    1. Focus on Contribution Margin: Unlike variable costing that focuses on the variable costs per unit, throughput costing looks at the contribution margin per unit. This means that only direct material costs are considered while calculating unit costs, ignoring fixed manufacturing costs.

    2. Decision-Making Oriented: Throughput costing is geared towards providing information for decision-making rather than just cost determination. It helps managers identify the most profitable products and make informed decisions about resource allocation and production levels.

    3. Limited Inventory Valuation: Variable costing and absorption costing include both variable and fixed costs in the calculation of product costs, which means inventory values are affected by production levels. However, throughput costing only considers the direct materials cost for inventory valuation, resulting in a more accurate representation of available resources.

    4. Emphasis on Throughput: As the name suggests, throughput costing focuses on maximizing throughput, i. e. , the rate at which products move through the production process. This encourages companies to prioritize the production of high-demand products, leading to higher profitability.

    Overall, the Variable Work Standard′s focus on flexibility, decision-making, and maximizing throughput will differentiate it from traditional costing methods and help companies achieve sustainable growth and success in the fast-paced and ever-changing business landscape of the future.

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    Variable Work Standard Case Study/Use Case example – How to use:

    Client Situation: The client, a manufacturing company, was facing challenges in accurately determining the cost of their products and making strategic decisions based on this information. They were currently using absorption costing, where all fixed and variable costs are allocated to products, but were considering implementing either variable costing or throughput costing as alternative methods.

    Consulting Methodology: The consulting team conducted a thorough analysis of the client′s current costing system and their business processes. They studied various industry best practices and consulted with subject matter experts to understand the pros and cons of the different costing methods. Through this research, they determined that variable and throughput costing were the two most suitable alternatives for the client.

    Deliverables: The consulting team developed a detailed report outlining the differences between variable costing, absorption costing, and throughput costing. It included an analysis of the impact of each costing method on the client′s financial statements. Additionally, they provided training to the client′s management team on how to implement and utilize these costing methods effectively.

    Implementation Challenges: The implementation of any new accounting method comes with its own set of challenges. In this case, the main challenge was convincing the client′s management team and stakeholders about the benefits of moving away from absorption costing, which was the company′s long-standing practice. The team also had to ensure that the implementation process did not disrupt the client′s day-to-day operations.

    KPIs: The consulting team established key performance indicators (KPIs) to measure the success of the implementation. These included improvements in the accuracy of cost determinations, better understanding of cost structure, and the ability to make more informed decisions related to pricing and product mix.

    Management Considerations: Before implementing variable or throughput costing, it is essential for management to consider the implications on various aspects of the business. Some of these considerations include the impact on product pricing, budgeting and forecasting, cash flow, and tax planning. For example, variable costing may provide a more accurate picture of product profitability, but it may make budgeting and forecasting more challenging due to the exclusion of fixed costs.

    Comparison between Throughput Costing, Variable Costing, and Absorption Costing:

    Throughput Costing:

    Throughput costing is a method of determining the cost of products that focuses on the direct costs of producing goods or services. Direct costs include only variable costs such as raw materials, labor, and direct overheads. Fixed production costs are not included in the calculation, as they are considered irrelevant to the decision-making process. Therefore, under throughput costing, fixed costs are expensed in the period in which they are incurred, rather than being allocated to products.

    Advantages of Throughput Costing:

    1. Focus on variable costs: With throughput costing, managers can clearly see the direct impact of variable costs on the cost of production. This allows them to make better decisions related to pricing and product mix.

    2. Simplicity: Unlike absorption costing, throughput costing does not require the allocation of fixed overhead costs. This simplifies the cost determination process and reduces the chances of errors.

    3. Strategic decision-making: By focusing only on variable costs, throughput costing enables managers to make decisions based on the true cost of goods sold. This can help them identify profitable and non-profitable products and make strategic decisions accordingly.

    Disadvantages of Throughput Costing:

    1. Does not comply with GAAP: The Generally Accepted Accounting Principles (GAAP) require the allocation of all costs, including fixed overhead costs, to products. Therefore, throughput costing may not comply with GAAP standards.

    2. Exclusion of fixed costs: By excluding fixed costs, throughput costing may not provide a complete picture of the cost of production for each product. This could lead to incorrect decisions related to product pricing and profitability.

    Variable Costing:

    Variable costing, also known as direct costing, is a method of determining the cost of products that includes only variable manufacturing costs, such as direct materials and direct labor. Fixed manufacturing costs are treated as period expenses and are not included in product costs. Therefore, under variable costing, only variable costs are considered in determining the cost of goods sold.

    Advantages of Variable Costing:

    1. Accurate product profitability: By excluding fixed costs, variable costing provides a more accurate picture of product profitability. This allows managers to make informed decisions related to pricing and product mix.

    2. Transparency: Variable costing makes it easier to understand the relationship between fixed and variable costs and their impact on product costs. This transparency can help managers identify cost-saving opportunities and improve efficiency.

    3. Compliance with GAAP: Unlike throughput costing, variable costing complies with GAAP standards, making it a more acceptable method for external reporting.

    Disadvantages of Variable Costing:

    1. Difficulty in decision-making: Since fixed costs are excluded from product costs, managers may find it challenging to make decisions related to long-term investments or new product development.

    2. Ignores fixed costs: Variable costing does not consider fixed costs, which can distort the true cost of production and profitability of products.

    Absorption Costing:

    Absorption costing is the traditional method of determining the cost of products, where all variable and fixed costs are allocated to products. This includes direct materials, direct labor, and both variable and fixed overhead costs. This method is also known as full costing.

    Advantages of Absorption Costing:

    1. Compliance with GAAP: As mentioned earlier, absorption costing complies with GAAP standards, making it an acceptable method for external reporting.

    2. All costs are allocated to products: Unlike variable costing and throughput costing, absorption costing allocates all costs, including both variable and fixed costs, to products. This provides a more comprehensive view of product profitability.

    Disadvantages of Absorption Costing:

    1. Difficulty in cost control: By allocating fixed costs to products, absorption costing may make it challenging for managers to control and reduce costs. This could lead to inefficiencies and distorted product costs.

    2. Difficulty in decision-making: Absorption costing may not provide an accurate picture of profitability for each product, making it difficult for managers to make informed decisions related to pricing and product mix.


    In conclusion, throughput costing, variable costing, and absorption costing are three different methods of determining the cost of products with their own advantages and disadvantages. Throughput costing is more suited for companies with high levels of fixed costs, while variable costing provides a better understanding of the relationship between fixed and variable costs. Absorption costing complies with GAAP standards but may not accurately determine product profitability. It is essential for companies to carefully consider their business needs and goals before choosing a cost determination method that best suits their requirements.

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