Throughput Accounting Free Essay Example, 1750 words

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 shape of time constraints and policy constraints. Steps involved in throughput accounting Goldratt (1990) contends that the working principles of throughput accounting or theory of constraints extend a focus to a continuous improvement process and this principle is comprised of five focusing steps as elaborated below: (1) Identify the system’s constraint(s): Constraints may be relating to physical (e. g. machines, people, materials, demand level) or managerial (Rahman, 1998, p. 338). Generally, organizations have limited physical constraints but face numerous managerial constraints in the form of procedures, policies, methods and rules. In this regard, Goldratt (1993) devised a technique called a Current Reality Tree for identifying policy constraints. We will write a custom essay sample on Throughput Accounting or any topic specifically for you Only $17.96 $11.86/page Moreover, non-constraint resources comprise of productive capacity (capacity supporting the constraint throughput) and the idle capacity (capacity to safeguard against system disruptions and capacity not currently required) (Lockamy and Cox, 1994).