1. Lu Shan 0132303 Hu Jian 0132323 Shang Chen 0132342 1

2.  Throughput accounting (TA) is an approach to production management which aims to maximise sales revenue less materials cost (Throughput), whilst also reducing inventory and operational expenses. TA is developed from the theory of constraints(TOC). 2

3.  The theory of constraints (TOC) is an approach to production management which aims to maximise sales revenue less material cost. Its key financial concept is to turn materials into sales as quickly as possible. 3

4.  A production resource(eg: machine time, labour time)  A selling resource  The existence of an uncompetitive selling price ……  A need to deliver on time to particular customers  A lack of product quality and reliability  The lack of reliable material suppliers ….. 4

5. I. Identify the constraint(bottleneck resource). II. Decide how to exploit the constraint. III. Subordinate and synchronise everything else to the decisions made in step 2. IV. Elevate the performance of the constraint. V. If the constraint has shifted during any of the above steps, go back to step 1. 5

6. 6 1 Inventory is an asset 2 Costs are classified as direct or indirect 3 Direct labour cost is a variable cost 4 Deducting a product cost lead to product profitability Conventional cost accounting It's not an asset but a barrier to making profit Direct cost and indirect cost are no longer exist in TA Labour costs are classified as fixed costs Profitability is determined by the rate at money and throughput is earned Throughput accounting 5 Profit can be increased by reducing cost elements Profit is a function of material cost, Profit= Throughput - TFC Throughput accounting VS Conventional cost accounting

7.  We are aim at maximising the throughput per unit of bottleneck resource.  Giving priority to those products that earn the largest throughput per unit of bottleneck resource.  Ranking products in order for production and sales according to the throughput that they earn per unit of bottleneck resource they consume. 7

8. Step 1: Determine the bottleneck resource Step 2: Calculate the throughput per unit for each product Step 3: Calculate throughput per unit of limiting factor Step 4: Rank products Step 5: Allocate resources to arrive at optimum production plan 8

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11. (Exercise 2.2)Product Z is made in a production process where machine time is a bottleneck resource. One unit of product X requires 0.3 machine hours. The costs and selling price of Product X are as follows: $ Materials 8 Labour(0.4hours) 4 Other factory costs 2 14 Sales price 18 Profit 4 In a system of throughput accounting,what is the throughput accounting ratio for Product Z? A.1.29 B.1.67 C.3.00 D.4.00 11

12. 12 Thank you for listening