Flow Cost Accounting, an Accounting Approach Based on the Actual Flows of Materials

Abstract

5.1. The basics of flow cost accounting 5.1.1. Flow cost accounting as a basic element of flow management Flow cost accounting is an essential instrument in a new management approach known as flow management (see also Strobel, 2001; LfU, 1 1999). The aim of flow manage-ment is to improve the management of production companies by overcoming compart-mental thinking and instead to see one's organisation as a system that channels and transforms flows of materials 2 and information from beginning to end. These flows are to be structured in an efficient, goal-oriented manner. Flow management, with the goal of having a company that is both profitable and environmentally sound, has three main components: the ' flow model', ' flow cost accounting', and ' flow organization'. Flow modelling makes the materials and informational flows transparent, while directing attention to materials losses. With the help of flow cost accounting, all costs within a company will be assigned to specific materials flows. To perform flow cost accounting successfully, existing information systems (such as SAP R/3) and available databases must be used. Technical measures are frequently insufficient to reduce flow costs on a long-term basis because of existing organizational barriers. The flow-oriented restructuring of the organi-zation that is needed for this – the flow organization – has links with a flow-oriented version of process-engineering. Co-ordination of the different elements requires effective flow-oriented communication. 5.1.2. The purpose of flow cost accounting In addition to environmentally-oriented cost accounting systems, other different approaches have been developed to remedy the shortcomings of traditional cost accounting methods though without replacing them, such as activity-based costing, target costing, and logistics costing. This begs the questions: what can flow cost accounting add to the existing body of knowledge, and why is this approach increasingly adopted by industrial concerns? In flow management, the company can be defined as a materials flow system 3 (see Figure 5.2). This includes, on the one hand, the classic materials flows from incoming 1