TOC FINANCE & MEASUREMENTS
Since cost accounting was a development of the 1920's, its logic often assumes average costs per part, average margin, etc… This can lead to opposite conclusions when determining which service or product is actually most favorable. Additionally it also impacts many parts of the organization as sales commissions tend to be based on "margins", ROI, efficiencies, etc…
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COST(LY) vs. THROUGHPUT ACCOUNTING...
Organizations that wish to increase their attainment of The Goal should therefore require managers to test proposed decisions against three questions. Will the proposed change:
- Increase Throughput? (T)
- Reduce Investment (inventory) (I)?
- Reduce Operating Expense (OE)?
The answers to these questions determine the effect of proposed changes on system wide measurements:
- Net Profit (NP) = Throughput - Operating Expense = T-OE
- Return on Investment (ROI) = Net Profit / Investment = NP/I
- TA Productivity = Throughput / Operating Expense = T/OE
- Investment Turns (IT) = Throughput / Investment = T/I
Throughput Accounting is an important development in modern accounting that allows managers to understand the contribution of constrained resources to the overall profitability of the enterprise.
Find out how (TA) Throughput Accounting can help your organization:
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