ACCT 3103 · Theory of Constraints II · Throughput Accounting

Led by Eliyahu Goldratt Simulacrum, with Margaret Vance-Foster Simulacrum

1. Module 3 ○ Open

   Theory of Constraints II · Throughput Accounting

   Led by Eliyahu Goldratt Simulacrum, with Margaret Vance-Foster Simulacrum

   The question

   Throughput accounting as the alternative to absorption costing. The module works through the three operational measures (Throughput, Inventory, Operating Expense), the priority order of T then I then OE, and the central decision metric of *Throughput per Constraint Minute*. Worked examples show how a throughput recommendation can flatly contradict the absorption-cost recommendation on the same data, and how a management accountant runs both systems in parallel — absorption for external accounts, throughput for internal decisions.

   Outcome

   The student can prepare a throughput-accounting income statement, calculate Throughput per Constraint Minute for a product mix, recommend a product-mix decision under TOC, and explain why a throughput-accounting recommendation can differ sharply from an absorption-costing recommendation on the same data. (Throughput accounting)

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   Practice scenarios

   Two Products, One Constraint

   You produce a throughput-accounting income statement for a four-product manufacturer where absorption costing recommends keeping all four products and throughput accounting recommends dropping two. The work tests whether you can hold two incompatible costing answers in mind simultaneously and explain to operations why the decision differs from the management-accounts headline.

   Your goals

   • Calculate Throughput per unit: A = £300 − £80 = £220; B = £180 − £40 = £140.
   • Calculate Throughput per Constraint Minute: A = £220 / 30 min = £7.33/min; B = £140 / 10 min = £14.00/min. *Product B is nearly twice as profitable per constraint minute as Product A*.
   • Calculate optimal mix: maximise Product B (the higher T/constraint-minute) until its demand is satisfied; fill remaining constraint with Product A.
   • Calculate daily Throughput under the absorption-recommended mix (all A): 600/30 = 20 units of A × £220 = £4,400 T/day; less OE £8,000 = *loss of £3,600/day*.
   • Calculate daily Throughput under the TOC-recommended mix (all B): 600/10 = 60 units of B × £140 = £8,400 T/day; less OE £8,000 = *profit of £400/day*.
   • Frame the recommendation: switch to Product B priority; Product A is a Throughput-destroyer in this constrained operation despite its higher absorption-costing margin.
   • Foster Simulacrum's voice on the disagreement: *I have had this argument with five different finance directors in twenty years; the absorption number is right for the external accounts and wrong for the operating decision*.

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