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Chapter 04 (Cont) - Alternative costing methods - Coggle Diagram
Chapter 04 (Cont) - Alternative costing methods
Throughput accounting
Theory of constraint (TOC): turn materials into sales as quickly as possible
Throughput = sales - material costs
Throughput accounting is based on TOC, which focus on maximize throughput while try to minimize operational cost
Bottleneck resources = binding constraint = limiting factors
5 steps in TOC:
Identify the constraint
Decide how to maximize the constraint
Subordinate and synchronize everything else to the decision in (2)
Elevate the performance of the constraint
If the constraint has shifted, back to step 1
Throughput accounting concepts
In short run, ONLY material cost is available. All other factory costs are fixed
In Just-In-Time environment, inventory is bad. Ideally it should be 0 -> Accept some idle time in non-bottleneck operations
WIP should be valued at material costs, so that no value is added until a sale is made
Profit is determined by the rate at which throughput is generated (how quickly raw material can be turned to sales and cash)
Solution for optimal production plan:
Determine bottle neck resources
Calculate the throughput per unit for each product
Calculate the throughput per unit of limiting factors
Ranking products
Allocate to arrive at optimum plan
Performance measures
Throughput returns per factory hour = throughput per unit / Product time on bottleneck resources
Factory cost per factory hour = Factory cost per unit / Product time on bottleneck resources
Throughput accounting ratio = Throughput per unit of bottleneck resources / Factory cost per unit of bottleneck resources
Environmental accounting
Generation and analysis of both financial and non-financial info to support environmental management process
Environmental costs
Conventional costs (eg raw material & energy)
Potentially hidden costs
Contingent costs
Image and reputation cost
ISO 14001: an environmental management system must comp-rise
Environmental policy statement
Assessment on environmental aspects
Management system
Internal audit and report to senior management
Public declaration that ISO 14001 is complied
Accounting for environmental costs
Input / Output analysis (eg input 100%, output includes 75% finished, 15% waste, 10% residual
Flow cost accounting: positive product is good output, negative product is measurement of waste
Environmental ABC
Environmental life cycle costing
Limitations of EMA
EMA is hard to define -> So the actual costs is hard too
Some of the costs are hard to separate out
Costs need to control but they are hard to identify
Importance of environmental costs
Assessing pricing decisions
Ensuring compliance with standards
Potential cost saving
Gov support
Reputation and goodwill