Throughput costing

Question 1

what is the theory of constraints

Answer 1

a production system where the concept is the maximization of throughput while keeping conversion and investment costs to a minimum.

Question 2

what is throughput contribution

Answer 2

sales revenue - direct material costs

Question 3

what is bottleneck resource or binding constraint

Answer 3

a process which has a lower capacity than preceding or subsequent activities

Question 4

what is the 5 step approach to a bottleneck

Answer 4

identify the bottleneck
exploit it - ensure its always at full capacity
subordinate - operations prior should operate at the same speed
elevate - steps should be taken to increase resources
return to step 1

Question 5

what is throughput accounting

Answer 5

an approach to maximise throughput contribution, while also reducing inventory and operational expenses.

Question 6

what is the formula for total factory costs

Answer 6

fixed production costs, including labour

Question 7

what is the formula for return per factory hour

Answer 7

(sales - material) / time on bottleneck resource

Question 8

what is the formula for costs per factory hour

Answer 8

total factory costs / time on bottleneck resource

Question 9

what is the formula for TPAR

Answer 9

return per factory hour / cost per factory hour

Question 10

formula for throughput

Answer 10

sales - material costs

Question 11

what are fixed costs in throughput

Answer 11

all operational expenses that are not material