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Throughput Accounting - Research Paper Example

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Throughput Accounting

The purpose of these techniques is to develop a framework through which efficiency and performance of organizations should touch their peak level. In addition, such techniques must not only increase sales revenues, but also should be able diminish cost of doing business. Throughout the history of management accounting, a number of cost accounting techniques also have been developed to focus on the productivity and performance through fixed overhead costing methods, Absorption costing methods, Activity Based Costing (ABC), however a little amount of concentration has been provided towards the constraints and problems being faced by organizations. History has witnessed that the performance of organizations is largely challenged by the constraints and these are the factors that have really potential to influence the performance of the organizations. Thanks to the theory of throughput accounting that has largely focused to constraints being faced by organizations. Constraints could be a policy, a material constraint, time constraint and so on. By focusing on the different aspects of cost and performance of organizations, throughput accounting has become successful in attracting the attention of number of multinational organizations. In the subsequent parts of this paper, first theory of throughput accounting is defined and its basic foundations have also been discussed. Subsequent to that, steps involved in throughput accounting have also been elaborated and it is followed by the part comprising of the inherent limitations being faced by this concept. Before the summary part, analysis portion has been included. Throughput Accounting Hutchinson (2007) defines throughput as the rate at which the system generates money through sales (48). And throughput accounting has been defined as the sales price minus all variable costs (Noreen et al. 1995). And others define throughput as sale prices minus material cost. And, the concept of throughput accounting based on two components: First, every system must have at least one constraint (Rahman, 1998, p. 337). If it were not accurate, then a real system as a profit making organization would make uncountable profits. As a result, a constraint is anything limiting a system from achieving higher level of performance versus its objectives (Glodratt, 1988, p.453). Second, the presence of constraints provides opportunities for improvement (Rahman, 1988, p.337). Contrary to the conventional thinking, the concept of throughput accounting considers constraints as positive, not negative because they highlight and determine the performance of a system. And, the understanding and subsequent elevation of the system’s constraints will enhance the performance of the system. Within the above mentioned context, throughput accounting has become an important development in the modern conventions of accounting allowing management accountants to comprehend the significance and contribution of the constrained resources to aggregate profitability. The concept of throughput accounting does not largely focus on the efficiencies and performance based on the efficiencies instead it takes into account the different types of constraints which can be in the ...Show more

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Throughput Accounting Name University Name Table of Contents Introduction .1 Throughput Accounting…
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