Throughput accounting
Throughput accounting is an alternative to cost accounting based on Standard or Activity Based Costing (ABC) proposed by Eliyahu M. Goldratt.
Cost accounting is an organization's internal method to measure efficiency. Since no one outside the organization uses such internal accounts for investment or other decisions, any methods that an organization finds helpful can be used. Outside parties in the U.S. depend on accounting reports prepared by financial (public) accounts under Generally Accepted Accounting Practices (GAAP) issued by the Financial Accounting Standards Board (FASB) and enforced by the Securities and Exchange Commission (SEC) and other regulatory agencies.
Throughput accounting claims to improve management decisions by using measurements that more closely reflect the effect of decisions on three critical monetary variables (Throughput, Inventory, and Throughput (T) is the money the system receives for products that are sold. Throughput replaces output, a variable that can be manipulated to make financial accounting statements more attractive to investors. Output that is delivered to a warehouse rather than a customer does not count.
- Inventory (I) is the money the system has invested in things it intends to sell, money which it cannot use for another purpose until then. In addition to conventional fixed costs like buildings and machinery, electricity, labor, adhesives, lubricants, and many other items that usually count as variable costs are part of Inventory.
2. Reduce Inventory (money that cannot be used)? How?
3. Reduce Net Profit (NP) = Throughput - Operating Expense = T-OE,
5. Return on Investment (ROI) = Net Profit / Inventory = NP/I,
6. Productivity (P) = Net Profit / Operating Expense = NP/OE, and
7. Inventory Turns (IT) = Throughput / Inventory = T/I
See also
Reference
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