Learning Unit 12 - Other ancillary topics

Question 1

What is the theory of constraints? (POMA Pg542)

Answer 1

The theory of constraints holds that a system’s achievements are limited by a small number of constraints and that there is always at least one constraint.

Question 2

What are internal constraints?

Answer 2

Internal constraints arise from the internal operations of an organization, such as insufficient staff training or inadequate machine capacity.

Question 3

What are external constraints?

Answer 3

External constraints arise from the environment within which an organization operates and on which it relies in order to achieve its goals.

Question 4

What is throughput (in the context of the theory of constraints)?

Answer 4

Throughput is the rate at which money is generated.

Throughput = money paid to suppliers (direct materials and services) - money obtained from customers (sales).

Labor expenses are not deducted when throughput is calculated.

Question 5

What is inventory (in the context of the theory of constraints)?

Answer 5

The sum of direct materials inventory, WIP inventory, finished goods inventory.

Question 6

What are operating expenses (in the context of the theory of constraints)?

Answer 6

All operating costs (other than direct materials and direct services) incurred to generate throughput.

Question 7

What is throughput accounting?

Answer 7

The management accounting technique that focuses on achieving the maximum return per unit of constrained activity is called throughput accounting.

Question 8

What is the throughput ratio?

Answer 8

It is calculated as the throughput per unit of constrained activity, divided by the operating expenses per unit of constrained activity.

Question 9

What are the steps in the theory of constraints?

Answer 9

Step 1: Identify the constraint
Step 2: Exploit the constraint
Step 3: Subordinate other activities to the constrained activity
Step 4: Elevate the constraint
Step 5: Return to step 1

Question 10

What is cost control?

Answer 10

Refers to the daily routine of attempting to keep costs at acceptable levels

Question 11

What is business process re-engineering?

Answer 11

Business process reengineering occurs when the process is re-designed in a radical way so that the entire process functions differently