1. Value Stream Costing
Mahmoud Al-Odeh, PhD
Bemidji State University

2. Objectives Value Stream Costing (VSC) Drawbacks in standard costing
Case study on implementing VSC.

3. Value Stream Process GATHER DATA DEVELOP CURRENT STATE PERFECTION
DEVELOP FUTURE STATE
DEVELOP ACTION PLAN

4. Value Stream Costing
Developed in by Maskell and Baggaley as an instrument to facilitates the calculation of production cost.
VSCA shows how resources are used within value stream.
VSC main advantage the simplicity in use, which helps reducing waste.

5. Value Stream Costing
VSC deals with tracking revenue and the associated variable costs required to generate revenue.
Not to spend funds unless they are associated with generating revenue.
VSC provides better information for decision-making it has a positive impact for effective cost control.

6. Value Stream Costing
VSC is typically calculated weekly (bi-weekly or monthly) and it takes account of all the costs in the value stream.
No distinction between direct costs and indirect costs; all the costs within the value stream are considered direct.
Costs outside of the value stream should be eliminated.
The total value stream cost includes all labor costs; both traditionally direct costs and traditionally indirect costs.

7. Value Stream Costing
The production material costs are generally calculated from how much material has been purchased for the value stream during a particular week.
For this material cost to be valid there needs to be low raw materials and work-in-process inventories; and these inventories must be under good control.
If inventories are low, then the materials brought during that week will be used quickly and will accurately reflect the material cost of the product manufactured that week.

8. Value Stream Costing
Machine cost is calculated based on the time life of the machine to find the cost per minute.
Support costs like spare parts and soft tooling are purchased for the value stream and the costs of consumables, supplies, and other day-to-day expenses are assigned to the value stream.

9. Value Stream Costing Value Stream Material Cost Machine Cost
Employee Cost
Support Costs
Value Stream

10. Traditional Costing
Traditional costing is designed to support mass production.
Standard costing allocates all overhead to products and relates the overhead to direct labor hours.
Standard costing encourages non lean behavior by focusing on utilization of resources, people’s individual efficiencies, and overhead allocations.
Standard costing calls for elaborate and wasteful data collection systems.
Standard costing does not provide the data needed to support and encourage lean manufacturing.

11. Traditional Costing VSC
Reduce the cost by making more product
Make as needed products
Build just-in-case inventory
Focus on Value Stream Costs rather than departments costs
Reduce the cost by utilizing resources to the maximum
Improve the available Capacity
Reduce the cost by optimizing department efficiencies
Reduce non- productive time
Track direct, indirect, overhead costs
No distinction between direct or indirect costs
Relates the overhead to direct labor
All costs of the value stream are considered direct costs

12. Case Study XYZ industries

13. Bearings UC 208 UC 208 Customer Oder 5000 monthly Working Hours
Two shifts – 12 hours each / day
Break
One hour/shift
Raw Material
Monthly
Working day/ week
7 days

14. Factors used in VSC Total Available Time Productive Time
Non-Productive Time
Value-Added cost
Available capacity
Non-value added cost

15. Bearings VSC Process Designing Purchasing Preparation
Material Costs
Employee
Costs
Machine Costs
Other Costs
Total Cost
Designing
$1.70
$5.20
$6.90
Purchasing
$2.10
Preparation
$460.00
$8.50
$2.80
$471.30
Processing (includes Assembling, Finishing, Packaging)
$92.00 $
$428.54 $
Maintenance
$1.10
Marketing & Customer Service
$1.40
Shipping
$25.00
$8.08
$33.08
Accounting
$2.40
Total
$577.00 $
$431.34 $

16. Current State

17. Bearings Processing – Before
Value-Added Time
Material Costs
Employee Costs
Machine Costs
Other Costs
Total Cost
Bar cutting
13.89
$166.67
$2.91
$169.58
Upsetting
9.72
$116.67
$2.78
$119.45
Piercing
16. 67
$19.00
$200.00
$2.86
$221.86
Annealing
180.56
$2,166.67
$306.58 $
CNC machine
145.83
$22.00
$1,750.00
$97.38 $
Drilling
90.28
$25.00
$1,083.33
$8.61 $
Threading
48.611
$24.00
$583.33
$7.42
$614.75
Inspection & Packing
62.5
$2.00
$750.00
$752.00
Total
hours
$92.00
$6,816.67
$428.54 $

18. Future State

19. Bearings Processing – After
Value-Added Time
Material Costs
Employee Costs
Machine Costs
Other Costs
Total Cost
Bar cutting
13.89
$166.67
$2.91
$169.58
Upsetting
9.72
$0.00
$116.67
$2.78
$119.45
Piercing
16.67
$19.00
$200.00
$2.86
$221.86
Annealing
90.28 $
$306.58 $
CNC machine
145.83
$22.00 $
$97.38 $
Drilling
$25.00
$8.61 $
Threading
48.61
$24.00
$583.33
$7.42
$614.75
Inspection & Packing
62.50
$2.00
$750.00
$752.00
Total
hours
$92.00 $
$428.54 $

20. Achievements Factor Before After WIP 82.72 69.57 Value- added time
568.1 hours
477.8 hours
Non-Value- added time
47.37 hours
39.83 hours
Not used
56.57 hours
154.4 hours
Total time available/ Month
672 hours
Total Cost  $  $
Productive time
85%
71%
Non- productive time 7% 6%
Available capacity 8%
23%
Value-Added cost $ $
Non-value added cost
$568.44
$478.00
Customer not ready to pay $

21. Questions ?