INTERNATIONAL

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CONTEMPORARY ISSUES IN
----------·--------------------------------------------------------------······----------------- -·-------------------·

ECONOMICS, BUSINESS · ·· -

AND MANAGEMENT
Editor
Verica Babic

FACULTY OF ECONOMICS
UNIVERSITY OF KRAGUJEVAC
CONTEMPORARY ISSUES IN
ECONOMICS, BUSINESS
AND MANAGEMENT

Edited by

Verica Babić, Ph.D.

FACULTY OF ECONOMICS
UNIVERSITY OF KRAGUJEVAC
Kragujevac, 2018
 Publisher
Faculty of Economics, University of Kragujevac

For the Publisher

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Editor
Verica Babić, Faculty of Economics, University of Kragujevac

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Faculty of Economics University of Kragujevac, Kragujevac, The Republic of Serbia

ii
Program Committee

Verica Babić, Faculty of Economics, University of Kragujevac, President

Petar Veselinović, Faculty of Economics, University of Kragujevac
Pawel Lula, Cracow University of Economics
Robert Gora, University of Information Technology and Management, Rzeszow
Yannis Hajidimitrou, School of Business Administration, University of Macedonia
Matjaž Mulej, Faculty of Economics and Business, Maribor
Nataliia M. Huliayeva, Faculty of Economics, Management and Psychology, Kyiv National
University of Trade and Economics
Augusto D'Amico, University of Messina
Darko Tipurić, Faculty of Economics, University of Zagreb
Saša Petković, Faculty of Economics, University of Banja Luka
Pece Nadanovski, Faculty of Economics, University of Skopje
Ljubiša Vladušić, Faculty of Economics, University of East Sarajevo
Anđelko Lojpur, Universty of Montenegro
Branislav Boričić, Faculty of Economics, University of Belgrade
Jadranka Todorović – Đurović, Faculty of Economics, University of Niš
Grubor Aleksandar, Faculty of Economics Subotica, University of Novi Sad
Milija Suknović, Faculty of Organizational Science, University of Belgrade
Predrag Stančić, Faculty of Economics, University of Kragujevac
Miroslav Đorđević, Faculty of Economics, University of Kragujevac
Gordana Radosavljević, Faculty of Economics, University of Kragujevac
Predrag Mimović, Faculty of Economics, University of Kragujevac
Milena Jakšić, Faculty of Economics, University of Kragujevac
Vesna Stojanović – Aleksić, Faculty of Economics, University of Kragujevac
Vladimir Ranković, Faculty of Economics, University of Kragujevac
Nenad Stanišić, Faculty of Economics, University of Kragujevac
Nikola Makojević, Faculty of Economics, University of Kragujevac
Marko Slavković, Faculty of Economics, University of Kragujevac
Vladan Ivanović, Faculty of Economics, University of Kragujevac
Veljko Marinković, Faculty of Economics, University of Kragujevac
Violeta Domanović, Faculty of Economics, University of Kragujevac
Zoran Kalinić, Faculty of Economics, University of Kragujevac
Mirjana Knežević, Faculty of Economics, University of Kragujevac
Srđan Šapić, Faculty of Economics, University of Kragujevac
Milan Kocić, Faculty of Economics, University of Kragujevac

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 Organizing Committee

Jelena Nikolić, Faculty of Economics, University of Kragujevac, President

Slađana Savović, Faculty of Economics, University of Kragujevac
Dejana Zlatanović, Faculty of Economics, University of Kragujevac
Jelena Erić Nielsen, Faculty of Economics, University of Kragujevac
Katarina Borisavljević, Faculty of Economics, University of Kragujevac
Milan Čupić, Faculty of Economics, University of Kragujevac
Vladimir Stančić, Faculty of Economics, University of Kragujevac
Nenad Janković, Faculty of Economics, University of Kragujevac
Nenad Tomić, Faculty of Economics, University of Kragujevac
Nemanja Lojanica, Faculty of Economics, University of Kragujevac
Katarina Radaković, Faculty of Economics, University of Kragujevac
Jovana Filipović, Faculty of Economics, University of Kragujevac
Tijana Tubić Ćurčić, Faculty of Economics, University of Kragujevac
Ana Krstić, Faculty of Economics, University of Kragujevac
Aleksandra Bošković, Faculty of Economics, University of Kragujevac, Secretary

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 CONTENT

ACCOUNTING AND BUSINESS FINANCE

THE (NO)ALIGNMENT OF COSTING AND ENTERPRISE MANAGEMENT

CONCEPTS WITH LEAN BUSINESS CONCEPT
Ljilja Antić, Bojana Novićević Čečević .................................................................................................. 383

ZERO-BASED BUDGETING AND ROLLING BUDGETING:

APPLICATION POSSIBILITIES
Mirjana Todorović, Vesna Janjić, Ivana Medved ................................................................................... 393

COMPARATIVE ANALYSIS OF THE CAUSE OF MODIFICATION IN AUDITOR'S

OPINION IN FINANCIAL SECTOR AND REAL SECTOR COMPANIES
Biljana Jovković, Milica Đorđević ......................................................................................................... 401

PERFORMANCE OF HISTORICAL VOLATILITY MODELS IN

FORECASTING VOLATILITY OF SERBIAN DINAR EXCHANGE RATE
Milan Čupić ................................................................................................................................ 413

THE ASSESSMENT OF ENTREPRENEURS’ FINANCIAL PERFORMANCE

IN THE REPUBLIC OF SERBIA
Jasmina Bogićević, Violeta Domanović, Mirjana Knežević................................................................... 421

DOMAIN AND RESTRICTIONS OF THE STATE AUDIT INSTITUTION

OF THE REPUBLIC OF SERBIA
Dragomir Dimitrijević, Vesna Janjić, Nevena Conić .............................................................................. 431

FINANCIAL REPORTING OF INVESTMENT PROPERTIES IN SERBIAN

MANUFACTURING ENTERPRISES
Nemanja Karapavlović, Vladimir Obradović, Sunčica Milutinović....................................................... 445

CAPITAL ASSET PRICING MODEL VERSUS ARBITRAGE PRICING THEORY

Miljan Leković, Tanja Stanišić ............................................................................................................... 455

CORPORATE INCOME TAX PLANNING AND FINANCIAL PERFORMANCE:

EVIDENCE FROM SERBIA
Stefan Vržina............................................................................................................................... 463

v
RELATION BETWEEN CORPORATE SOCIAL RESPONSIBILITY
REPORTING AND FINANCIAL INDICATORS OF SERBIAN
COMPANIES
Milena Damnjanović ...............................................................................................................................473

BENEFITS FROM IMPLEMENTING ENVIRONMENTAL

MANAGEMENT ACCOUNTING: CASE OF TOSHIBA
Nastasja Stašević .....................................................................................................................................481
 Lj. Antić, B. Novićević Čečević, The No(aligment) of Costing and Enterprise Management Concepts...

THE (NO)ALIGNMENT OF COSTING AND ENTERPRISE MANAGEMENT

CONCEPTS WITH LEAN BUSINESS CONCEPT

Ljilja Antić1, Bojana Novićević Čečević2

Abstract: Management accounting provides the most important part of the information support for
managing a modern company, based on customer requirements, business and financial goals of the
company, internal processes and the need for continuous business improvement. In order management
accounting to justify the epithet of the most important information source for efficient management, it is
necessary to develop new and continuously enhance existing concepts of costing and cost management,
to respond to the needs of enterprises wanting to maintain and improve their competitive advantage in
the changing business environment. In that regard are developed and enhanced concepts of costing and
cost managements and enterprises, such as, among others, activity based costing, target costing,
management concept based on the theory of constraints. Most of these concepts have in focus certain
phases of the product’s life cycle in which it is possible to reduce costs and improve performances.
Full application of lean business concept began in the last decades of the 20 th century. However, the
earliest examples and postulates of lean business concept date back to 1855. Specifically, a weapons
warehouse recorded a single piece flow. Since then, lean business concept has evolved and today
represents the leading business paradigm of modern companies. Lean business concept includes a
business philosophy and culture that eliminates all forms of waste from the company business flows in
order to shorten the lead time. This can be achieved by performing value-added activities in the best
possible way and constant business process improvement and employee development. The application of
the basic principles of lean business concept brings numerous benefits both at operational and strategic
levels. At the beginning of the application of lean business concept, only operational improvement is
visible. This is because strategic improvement comes only after changing the way of thinking, business
culture, and working methods, of both managers and executives. By guiding managers and executives
towards reducing waste in business processes, operational improvement becomes strategic. Lean
business concept, as market orientated, integrated and flexible management system, provides increased
value for customers, enhances business process and employees within it, and focuses on all phases of
product’s life cycle, not only few. Advantages and disadvantages of the implementation of some of the
above mentioned concepts of costing and cost managements in lean business environment are discussed
in this paper.

Key words: lean business environment, ABC, Target costing

JEL Classification: M41

1
Faculty of Economics Niš, ljilja.antic@eknfak.ni.ac.rs
2
Faculty of Economics Niš, bojana.novicevic@ekfak.ni.ac.rs

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INTRODUCTION
Achieving a better market position, faster responses to customer demands, and products of better
quality than competitors’, imply continuous monitoring and adjustment to changes in the
environment as well as development and implementation of new business concepts. One of the
concepts that corresponds to changed market conditions is the lean business concept, which
highlights the customer value by eliminating waste and non-value-added activities. Lean concept
was initially applied in the production process, and later its application was extended to all
processes in the company.
Successful performance of management activities, as evident in balance sheet and income
statement, making business decisions and systematic control of business and financial processes
in companies applying the lean concept require relevant and reliable accounting information.
Existing costing and enterprises management concepts, such as, among others, target costing,
activity-based costing, and the theory of constraints, produce information useful for carrying out
the management activities in companies performing their activities in the lean business
environment. The application of these concepts has greatly improved the company operations.
The aim of this paper is to overview the compatibility of existing costing and enterprise
management concepts with the lean business concept, with the purpose of improving enterprise
performance. Namely, existing costing and enterprise management concepts appeared in
different time periods; they are focused on the different phases of the product’s life cycle when
reduction and cost management are in question; information that they produce are used for short-
term and long-term business decision-making; some of them pay attention on constraints factors;
thus questioning their compliance with the managers’ requests in enterprises which apply lean
business concept.
Methodological procedures and techniques inherent in the social sciences will be applied in the
paper. The general conclusions about the considered problem are obtained based on the
theoretical analysis of relevant literature. Additionally, the comparative analysis is used to
emphasize the basic characteristics and determine the differences of existing costing and
enterprise management concepts, and lean business concept.
The paper is divided into two parts. In the first part, the essence of the lean business concept is
considered and special attention is given to the benefits arising from it, when lean is viewed as a
comprehensive enterprise business strategy. The second part provides comparison of the cost
and management concepts with the lean business concept and analyzes the advantages and
disadvantages of implementation of individual costing methods in lean business environment.

LEAN BUSINESS CONCEPT

Lean business environment emerged as a combined result of business globalization, rising
competition, increasing demand and declining customer loyalty, pervasive technological
innovation, application of modern manufacturing and information technology, drastic decline in
product life cycles, and other changes that happened in enterprises and their environment. In
such conditions, better competitive position implies the acceptance of new business concepts and
the change in the way the company’s production process is organized. Companies adapt to the
changed business environment by applying a lean business concept. Lean business concept is a
philosophy and methodology to eliminate waste, reduce costs, and increase organizational
efficiency. Lean business concept was originally applied in the production process, with
production focus on “value streams”. This production process appeared in Henry Ford’s
company in early 20th century, and later Toyota significantly improved it. The aim of lean
production is to minimize waste in the production process and to produce high-quality products
in as short a time as possible. Lean production reduces uncertainty and all kinds of waste.

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Elimination of waste is done in all business areas, both in human resources, as well as in terms
of space, machinery, time, and costs, with the aim of satisfying customer wishes and demands.
Companies applying the lean concept manage to reduce operating costs by 20-40% as well as
the time cycle by freeing up the capacity to perform production activities.
Managers in most industries focused their attention on reducing costs and increasing value and
performance. The focus of significant savings was on the production process, sales, and post-
sales services. However, recent research has shown that managers’ attention and efforts to
achieve savings need to focus on internal activities and services performed between
organizational units of the company. Managers have considered the whole business process with
special emphasis on what activities and services certain organizational units should do in order
that the next organizational part could smoothly perform its function. Research has shown that
the costs of these internal activities and services account for 10-30% of the total company costs
(Schiemann et al. 2009).
Establishing a lean business concept implies the following steps and is based on five key
principles (Hilker, 2011):
 Define value from the standpoint of the end customer;
 Identify all procedures in the business process and eliminate those processes that do not create
value, i.e. establish a “value stream”;
 Ensure smooth product flow towards customers;
 If the product flow is interrupted, allow customers to help create value (introduce request
system);
 Start a process that has a clearly defined value, identified product flow, removed redundancies
and waste to create a perfect value for customers.
The first step in establishing the lean business concept is determining value. The value is
most often defined as the benefit or difference that stakeholders and customers receive from
products or services when they deduct the costs they had to obtain that benefit. The value to be
created is determined by the end customer. The customer determines the characteristics of the
product that will best meet their needs. Value thinking from the customer’s standpoint allows
managers to focus on potential opportunities to increase value by understanding customer needs
(customer value) and optimizing the use of resources in the company (functional lean). The basic
characteristic of functional lean are (Schiemann et al., 2009):
 Focuses on the elimination of non-value-added activities and costs while preserving the key
competencies necessary for performing primary activities,
 Guides all internal service processes in one direction,
 Directs demand for activities and services of organizational units,
 Does not require large investment and a long time period to see the benefits, and
 Focuses on drastic improvement, not just on individual segments.
Company managers accept this defined value as the goal they need to achieve in order to meet
customer demands and increase their loyalty. With the defined value, all employees in the
company, who are involved in its creation and delivery, should be introduced.
Establishing a value stream involves the inclusion of all the activities that are necessary to create
value. The value stream includes all the activities that need to be done from the moment of the
product idea, through its production, to the moment of delivery to the end customers. First of all,
it is necessary to define the mission of performing certain activities. Once the mission is defined,
the key activities to be carried out, contributing to the accomplishment of the mission, are
identified. The established value stream goes beyond the production process and relates to the
overall business process, which clearly indicates the importance of its establishment and its

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potential as a measure for revenues, costs, and outcome. Careful selection of value streams and
the organization of all activities in a way to maximize value for customers bring significant
savings in the business process itself.
In order to ensure a smooth product flow to customers, it is necessary to take care that the product
does not go beyond the defined map limits. Once the value is identified and the value streams
established, it is necessary to focus on actual objects, i.e. specific design, order, and the product
itself. Lean concept involves the removal of all obstacles to the continuous product flow. Finally,
the entire product flow process needs to be reviewed again to avoid duplication of activities and
eliminate unnecessary business activities. Eliminating obstacles and waste in processes has
traditionally been a manager’s job, but the hidden waste in the processes has not been given
much attention. This hidden waste can sometimes severely disturb the process itself and the
product flow. In this sense, lean uses numerous techniques, such as Just in Time, Kaizen, 5 S,
Standardization of Work, and the like so that the product goes smoothly through all stages of the
process.
Pull system focuses on customer demands, and, it aims to ensure the conditions for starting
production when managers receive market requests. The customer is the one who determines
when the production of the required value will start and the pull system allows the company to
always have the appropriate level of stock.
Applying the lean concept means traveling rather than a destination to be reached. This is because
the process of applying the concept does not end with the application of these five principles, but
is constantly striving to find ways to improve the processes and minimize all forms of waste both
within the company itself, i.e. functions performed in it, and in activities between the company
and the environment.
Lean concept has long been seen as an approach to achieve operational efficiency. Later, lean
has gained a significant role in the implementation of the corporate strategy. Lean can be the
company strategy with focus on customers, allowing it to better understand customers and offer
greater value than competitors (Kapanowski, 2016a). By applying the lean concept as a
comprehensive strategy, company managers are able to adapt quickly to new circumstances,
increase revenue, promote entrepreneurial activity, and achieve synergy.
Companies that apply lean either as a business concept or as a strategy are able to faster adapt to
changes in and out of the company. In the lean company it is known exactly how the processes
are performed, in what way, and with what resources. In the event that it is necessary to shorten
the lead time, processes can be redesigned and directed in order to perform as efficiently as
possible.
Lean concept can increase the company revenue while at the same time keeping costs at the same
level. As the lean company tracks the time and way of performing an activity from the moment
of product order to its delivery, in order to find non-value-added activities that lose a certain
amount of money, companies can increase products or service throughput for customers and thus
increase the capacity to make additional sales. Normally, lean was viewed as a way to reduce
costs and free up capacity, while the ability of the lean strategy to increase revenue was not so
much discussed.
Changes and improvements occurring in the lean company are noticeable for all employees,
therefore employees are motivated to use and improve their knowledge and skills in order to
contribute to the overall process. Lean strategy forms a corporate culture that emphasizes respect
and appreciation of employees and values their contribution to business. Every employee applies
one of the lean techniques in their workplace and is able to see their contribution to business
improvement.

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Finally, lean strategy integrates all stages of the business process into one whole. We get one
company that functions as a system, rather than separate parts that have their own goals. The
involvement of each company employee and making them focus on customers while respecting
people and continuously tracking changes helps the company perform only value-added tasks
and activities and eliminate waste from all processes. Lean establishes processes in a company
that are under control, efficient and effective, not with the goal of achieving absolute control, but
to improve them. Lean uses the existing resources to establish these processes.
Lean implies the identification, elimination, and reduction of waste or non-value-added activities
in processes that are performed in accordance with the customer demands. Lean concept differs
from other improvement methodologies in that it implies respect for employees and elimination
of waste, while understanding the fact that nothing is perfect (Kapanowski, 2016b). Lean develops
and uses all organizational resources to eliminate waste and continuously improve business
according to customer requirements. The idea behind this concept is that everyone in the
company, not just managers, strive to add customer value.

POSSIBILITY OF APPLYING CONCEPTS OF COSTING AND COST

MANAGEMENT IN LEAN BUSINESS ENVIRONMENT
Lean business concept, aiming to improve quality, delivery, and lead time, applies a number of
lean techniques. Changes in business philosophy as a respond to the changing business
environment have to be followed by the changes of the most important management information
support, i.e. changes in the accounting information system. Accounting information system has
an impact on the acceptance of new business philosophies in three ways: technical, formal, and
cognitive (Ahlstrom et al. 1996). The application of new business philosophies involves the
accounting recording of new data for the needs of managers. Companies already have an
accounting information system that needs further improvement. When it comes to the formal
impact, it is necessary that the administrative functions, which include both the accounting
department and the IT sector, have a control function. These departments must take into account
the established control over operational activities, but also must take care of the implementation
of the new business philosophy. The cognitive impact relates to how the accounting system is
used and what its impact is on the organization. This primarily refers to the opinion and attitude
the top managers have in terms of the accounting system. If they seriously understand the need
to adapt the accounting information system to new business circumstances, the effect of changes
will be greater and more seriously understood in the company.
Companies that have begun their lean transformation process can apply the following concepts
of costing and cost management: target costing, activity-based concept, and the theory of
constraints. Table 1 summarize the comparative view of these concepts, as well as lean concept,
according to the time of occurrence, original and expanded purposes, time orientation, solutions
to the problems of optimization, control, cost allocation, inventory level, waste, capacity, quality,
flexibility, performance measurement, possibilities for improvement, etc. Table 1 gives a
comparative overview of these methods and the lean concept.
The concept of target costing is a proactive and forward-looking approach that encourages fast
product development and a fast design, which, on a highly competitive market, can be one of the
prerequisites for achieving a leadership position, which is in the essence of the lean business
concept. Also, this management concept establishes a direct link between specific customer
requirements and product design and costs, which is basically lean business concept (Innes,
2004).

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Table 1. Comparative overview of cost and management methods and the lean concept
Concepts Target costing ABC/M Theory of constraints Lean
Time of 1910, but
1980 1980 1950-1960
occurrence popularized in 1980
Original As accurate product Business Reducing waste and
Cost reduction
purpose cost as possible improvement increasing efficiency
Business Promotes continuous Promotes continuous
Expanded Activity
improvement in all improvement improvement
purpose management
segments philosophy philosophy
Concept of Promotes Not covered by Promotes Promotes
optimization optimization system ABC optimization system optimization system
Cosnstant review of
By introducing 5 levels to identify
Improvement the achieved cost Kaizen
activity analysis constraints
level
Short-term
Long-term Long-term focus on Long-term
Time orientation orientation with long-
improvement variable costs improvement
term implications
Value engineering Pull system with the
Control Not pronounced Drum-buffer-rope
and value analysis help of kanban
Costs are allocated
Cost focus on the Linking costs in
Cost allocation to activities, and No cost allocation
desired level value stream
then product
Does not take into Does not take into To overcome Minimizing to zero
Inventory level
account inventory account inventory constraints level
Reduction at the
Elimination to Perceived by
Waste place of perceived Elimination
achieve target cost applying ABM
constraint
Measured using
Takes into account
cycle time,
By applying the existing capacity
Capacity establishing balance
TDABC but does not tend to
between capacity and
establish balance
labour
In pre-production
Quality and production Not pronounced At constraint level Quality at source
phases
Effects of
Throughput costing Throughput costing
inventory on Increases profit Increases profit
reduces profit reduces profit
profit
Not strictly Applied from
Not strictly
pronounced, but Depending on events operational level
pronounced, but
Flexibility possible at in a company and with the help of
possible in pre-
consumption driver constraints statistical process
production phase
level control
Product costs, Maximizing
Target profit Non-financial and
Performance activity costs throughput, while
depends on sale financial
measurement related to minimizing inventory
price and target cost measurement
profitability and operational costs
Source: James R. Martin, Ph.D. (1996) Comparing Traditional Costing, ABC, JIT, and TOC. Cost Management;
Kapanowski, G. (2016) Lean fundamentals for accountants, Cost Management, January/February
The role of designers in terms of ensuring certain quality and functionality of products, and the
role of managers, who control and coordinate cost management, is basically the target cost
concept. Also, the role of strategic management accountants as managers and experts is
significant to achieve the target cost. This management concept does not focus enough attention
on employees who are directly involved in product creation, which is contrary to the lean
business concept where strengthening the role of employees is a very important success factor,
as managers consult them to set up projects for continuous business improvement. Through
analysis and cost reduction, one should find the best way to produce products at the lowest price,

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and the emphasis of this concept is on determining the target cost and the activities that are being
undertaken to achieve it at the pre-production stage. Once it is calculated, the focus is on its
detailed elaboration and achievement, with constantly finding new opportunities for additional
reductions. Eliminating all types of waste and achieving zero inventory levels cannot be achieved
by the target cost concept, as the level of inventory is determined in cooperation with suppliers,
where the needs for product components play an important role. Lean business concept tends to
optimize and continuously improve all business processes in all phases of the product life cycle
using a number of techniques, leading to lower inventory levels. With target costing, the
tendency for business optimization is not particularly pronounced as continuous improvement is
focused on the product design phase. The orientation of this concept on the product design stage
is important for lean business concept, because, at this stage, activities that determine quality,
price, cost, functionality, and the like are carried out. Quality with all other product attributes, as
well as control using pull system and kanban are requirements within lean business environment.
The externally determined value and product quality are good sides of target costing, with the
aim to, through the process cost reduction, preserve product quality, rather than ensuring the
quality at source, which is the task of the lean business concept. Instead of applying a pull system
in a lean business environment, target costing applies a value engineering technique. The
application of this technique yields good results, but for long-term operations in a lean business
environment it is more appropriate to apply a pull system.
The primary purpose of doing business in a lean business environment is to reduce waste in order
to increase business efficiency, with precise costing. Activity-based costing fits into this lean
requirement in terms of precise costing and long-term orientation. Activity-based costing does
not give precise information on how much the costs actually should be in order to achieve the
defined goals. It allows for an understanding of how the costs arise in the company, as well as
which products are profitable and which product mix is favorable for the company. However,
finding information about product profitability involves the collection of additional data on
business processes that are carried out in a company. Gathering this data implies additional
efforts and costs. Certainly, the collection of additional information for business decision-
making, which results in a decision to achieve the defined goals, should not represent a redundant
activity, but it is at high risk. Managers in a lean business environment need information support
that will immediately produce the desired information, and not require additional activities and
losses. Activity-based management has expanded the field of action of this concept in terms of
promoting a culture of continuous improvement. This is because activity-based management
encourages the analysis of activities and aims to eliminate non-value-added activities. The
shortcoming of activity-based management in a lean business environment is the absence of a
tendency to optimize the activity performance. Activity-based costing takes into account the
process flow in the company as one of the principles of the lean business concept. However, this
accounting system combines costs with activities and individual products, not with the value
stream and production cells.
One of the assumptions of the lean concept is finding a direct link between calculating precise
operating costs and improving operational performance, on which activity-based costing does
not insist. The original activity-based costing model does not respect the existence of unused
capacity which the lean business concept specifically takes into account. This disadvantage has
been partly eliminated by applying time-driven activity-based costing (Antić et al. 2016), but not
entirely. It should be noted that activity-based costing is complex for everyday use, which is in
contrast to the simplicity and comprehensibility, on which lean business concept insists.
The concept of the theory of constraints has since its creation sought to find problems in the
process functioning and direct its attention to the application of 5 basic steps (Antić et al. 2015).
However, this concept, as well as lean, promotes the philosophy of continuous improvement, but

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improvements occur only at the point of the observed problem. The theory of constraints strives
for simultaneous increase in throughput and the reduction of operating costs and inventory, with
much more attention being paid to the opportunities to increase throughput than to reduce
operating costs. Reduction of operating costs is carried out to the level at which the product
quality will not be compromised, and the reduction in inventories can be made to the extent that
the continuity of sales will not be affected. Reduction of operating costs and inventories is a
secondary objective of the theory of constraints, while reducing costs occurs only at the place of
the constraint. In such a situation, only waste that affects the throughput can be reduced, not real
waste that can compromise the entire product flow through the company. The concept of the
theory of constraints justifies the formation of inventories in situations where managers’ efforts
are aimed at overcoming constraints. In such circumstances, it is justified to keep a certain level
of safety stock that will protect the company from sudden change in demand. The purpose of
keeping the safety stock is to synchronize the product flow. The amount of safety stock or
additional time is determined by the production schedule and the time of material flow through
the processes. In a lean business environment, inventories are considered waste, and their holding
is unjustified. Lean business concept aims to reduce the safety level of stock, regardless of
possible changes in demand.
In the case where there are inventories that are not used for the production process, the lean
business concept considers that the capacities associated with these inventories are waste.
Business processes in the company cannot function perfectly from the start, so improvements
need to be planned. In the process of planning better resource utilization, the theory of constraints
recognizes both internal and external factors. The priority of the selected factors depends on the
amount of contribution to throughput. The theory of constraints seeks to find the weakest link in
the company operations as a whole, in order to improve performance. Lean business concept in
planning resource utilization starts primarily from internal factors, and later includes factors
outside the company.

CONCLUSION
The basic purpose of the lean concept is to reduce all forms of waste and costs (fixed and
variable) that occur in business processes in order to increase the efficiency of operations and
achieve take time. Later, the purpose of lean concept was extended to promote a culture of
continuous improvement in order to achieve significant improvements of operational and
strategic significance. For these purposes, lean concept uses a number of techniques that reduce
waste in terms of space, employee’s workplace, even employees themselves.
Although target costing has significantly improved company operations, its application in the
lean business environment shows certain limitations. The basic limitation lies in its focus on cost
reduction, designed in the planning and product development phase, which is not in line with the
basic principles of the lean concept. Target costing relates to cost reduction in order to achieve a
competitive product market price. In this sense, this costing concept does not reduce costs and
unnecessary activities in the company to the lowest possible level, which is basically a lean
business concept. The costs are reduced only to the target amount, not to the level at which all
types of waste are eliminated. Target costing also requires the cooperation of all partners in order
to achieve value for the customers through value engineering.
The application/implementation of activity-based costing in a lean business concept has shown
some weaknesses. One of the weaknesses is its complexity for everyday use. Activity-based
costing explains how costs arise in a company, but, to determine product profitability, involves
the collection of additional data and information about business processes that are carried out in
a company. Performing redundant activities to collect business process data causes additional
costs and excessive waste. Undoubtedly, this costing method more accurately calculates the

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product cost, but it does not provide information on how much the costs actually should be.
Combined with activity-based management and time-driven activity-based costing, activity-
based costing acts towards the expanded purpose of the lean business concept, i.e. aims at
continuous business improvement. Also, this concept allows unused capacities to be monitored
to a certain level.
The theory of constraints fits into the demands of the lean business environment in terms of
defining value by customers. The value is reflected in the production of high-quality products,
without defects, with the minimal investment of capital and employee efforts in a shorter period
of time. Customer value is considered differently in both concepts. The advocates of the theory
of constraints consider that the value is a factor that determines whether the company will
increase throughput. Lean business concept demands that it is necessary to identify and eliminate
unnecessary resource spending in order to achieve value. The key to the company success in a
lean business environment is product quality, which the theory of constraints also supports. In
order to ensure product quality, all business processes must be monitored through value stream.
For the successful implementation of the theory of constraints in the lean environment, there is
a need for a continuous product flow in small batches. Continuous product flow is achieved with
the pull system. These constraints arise from the pull system through the schedule of overall
company activities and the provision of conditions for their execution, while lean companies use
kanban. In this way, both concepts considerably reduce inventories arising from work-in-
progress and finished products and thus create free capacities. Inventories of work-in-progress
and finished products are considered to be one of the limiting factors for achieving company
goals in both concepts.
Because of the great informative power and suitability of the concepts described above,
implementation is possible in the short term. At the beginning of transformation into lean,
companies can choose one of these concepts to monitor business improvement. In practice, there
have been cases of implementation of these concepts, and the companies that applied them made
it easier for them to transform into a lean company. In the later stages of company transformation
into lean, all of the stated shortcomings of these costing methods come to the fore.
Acknowledgement: The paper is realized in the scope of the project No. 179066 „Improving the
Competitiveness of the Public and Private Sector by Networking Competences in the Process of
European Integration of Serbia“, funding by the Ministry of Education and Science of the
Republic of Serbia.

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332(082)(0.034.2)
658.8(082)(0.034.2)

INTERNATIONAL Scientific Conference EBM - Contemporary Issues in Economics, Business and

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Economics, Business and Management [EBM 2018], Kragujevac, 2018 [Elektronski izvor] / editor Verica
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