Each Value Stream (which is a family of similar products) is evaluated like a separate business within the larger company. Accountants don’t have to worry about allocating overhead to products because specific workers and facilities have been assigned to particular value streams and thus are directly traceable, which promotes more accurate product costing. The product cost is calculated by taking a Value Stream’s costs of the period and dividing by number of units made. This simplifies accounting considerably. For many people, the Lean Accounting Income Statement is easier to understand because they can see what is coming in (i.e. Sales) and what is going out (costs directly related to a particular value stream). Since items are not made until ordered, in lean manufacturing/accounting environments, managers are evaluated based on items SOLD, not on items PRODUCED.

REQUIRED: 

Explain why changes in value stream profitability may be better information than comparing individual product costs to standard costs for certain decisions.