Reference no: EM13845092
Throughput Accounting (TA) is a relatively new management accounting tactic developed by Eliyahu Goldratt, using the principles of the Theory of Constraints. Instead of focusing on cutting costs and expenses to generate more profit, TA involves finding ways to increase "throughput," which can usually be described as the rate at which a for-profit organization generates money.
Imagine you are a manager trying to make an important decision for your organization. If you want to use Throughput Accounting to assess the decision, there are three basic questions or measurements you should address. First, you should determine what effect the decision would have on the organization's throughput. Then, determine what effect the decision would have on the organization's operating expenses. Finally, determine what effect the decision would have on the amount of money tied up in investments like machinery and stored products.
This week's Discussion allows you to analyze and apply the concepts of Throughput Accounting. The Discussion also includes differentiating between optimization and maximization when it comes to production.
Review the article by Corbett, focusing on the three questions of Throughput Accounting and how Corbett addresses misconceptions about the Theory of Constraints.
Consider the goal "to make more money, now, and in the future" for all organizations (including for-profit, not-for-profit, and governmental). Should this be an organization's "end goal"?
Consider a decision that is either currently being faced by your organization or was faced by the company in the recent past.
Assess the decision by applying the throughput accounting methodology discussed in the introduction. Provide reasoning for the decision by answering/addressing the three measures/questions:
A description of the effect the decision would have on the organization's throughput.
A description of the effect the decision would have on the organization's operating expenses.
A description of the effect the decision would have on the amount of money tied up in investments like machinery and stored products.
From your descriptions, provide an explanation as to whether or not the organization made the right decision according to the application of throughput accounting. Provide examples and research to support your answers.
Provide a rationale for whether or not you would advise the use of throughput accounting for all decisions within an organization.
References
Corbett, T. (2006). Three-questions accounting. Strategic Finance, 87(10), 48-55.
Goldtratt, E. & Cox, J. (2014). The Goal: A Process of Ongoing Improvement.(4th ed.). Great Barrington, MA: North River Press.
Read pages 258 to the end, including the essay that begins on page 339).