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The New Improvement Journey
Published in Bob Sproull, The Secret to Maximizing Profitability, 2019
Bob began again, “Throughput Accounting uses three basic financial measures, which are, Throughput (T), Inventory or Investment (I), and Operating Expense (OE). So, let’s look at each of these in more detail. Throughput (T) is the rate at which your system generates money through sales of products or services, or interest generated. If you produce something, but don’t sell it, it’s not Throughput, it’s just Inventory. Throughput is obtained after subtracting the Totally Variable Costs (TVC). That is, the cost of raw materials, or those things that vary with the sale of a single unit of product or service from your revenue. Are you following me?” Bob asked and they both nodded their heads in agreement.
Simpson’s New Beginning
Published in Bob Sproull, Matt Hutcheson, The New Beginning, 2021
Tom began again, “Throughput Accounting uses three basic financial measures, which are, Throughput (T), Inventory or Investment (I), and Operating Expense (OE). So, let’s look at each of these in a bit more detail. Throughput (T) is simply the rate at which your system generates money through sales of products or services, or interest generated. If you produce something, but don’t sell it, it’s not Throughput, it’s just Inventory. Throughput is obtained after subtracting the Totally Variable Costs (TVC). That is, the cost of raw materials, or those things that vary with the sale of a single unit of product or service from your revenue. Are you following me?”
Product Cost
Published in Joyce I. Warnacut, The Monetary Value of Time, 2017
The advantages to throughput accounting are that it looks at variable cost and overcomes the problem of overhead absorption. It provides product contribution information, and it incorporates the concept of time (in the form of production time or gray space).
Service profit chain and throughput orientation: a manager-employee-customer triad perspective in services
Published in International Journal of Production Research, 2020
Pankaj C. Patel, Gurjeet Kaur Sahi, Mahesh Gupta, Jayanth Jayaram
Related to throughput accounting, the goal of TOC is to simultaneously improve financial indicators: net income (absolute terms), return-on-investment (relative terms), and cash flow (survival terms) (Goldratt and Cox 1984). In the service setting it is essential to focus on these three elements to measure throughput (how much money does the overarching service activity brings in?), investment (how many monetary resources, including human resource system, and tangible capital costs does the system incur to generate throughput?), and operating expenses (how much money is required for the services to operate?). Throughput accounting provides the necessary cost-bridge across these metrics to develop a cohesive performance measurement system. Specifically, net profit is the difference between throughput and operating expense; cash flow is net profit plus the change in investment, and return-on-investment is the ratio of the net profit to the investment. Compared to the traditional cost accounting, throughput accounting aims to maximise the throughput by linking process constraints and financial performance in decision-making. Consequently, it allows them to determine the real impact of their decisions (Goldratt 1990b).