Theory of Constraints Handbook - James Cox Iii [763]
1When considering an APS, an understanding of the materials of this chapter and other chapters in this section is necessary.
1An excellent summary may be found in Johnson and Kaplan (1987, Chapter 2).
2For a critical review of textbook treatment of Frederick Taylor’s principles and the Hawthorne experiments by Elton Mayo and others, see Whitehead (1938) and Olson et al. (2004).
3A long-time acquaintance, a senior partner in an international audit firm who had majored in accounting during his undergraduate years, confessed to the author that he would recommend that his children major in finance, not accounting.
4See Peters and Waterman (1982, 34–39) for a discussion of this situation and relevant references.
5See especially Chapters 6 and 8 of Johnson and Kaplan.
6Also sometimes called “margin” costing or “contribution margin” costing since the first subtotal on this type of statement is called “contribution margin” or “gross margin.”
7Dopuch and Birnberg (1969, 472) relate the original internal flow concern to a 1936 article (Harris, 1936).
8Time-driven allocations later were promoted in an attempt to overcome some of these deficiencies (Kaplan and Anderson, 2003; Everaert and Bruggeman, 2007), but were generally unsuccessful (Cardinaels and Labro, 2009).
9While Kaplan and Norton generally are credited with the development of the balanced scorecard, their renowned book states in the preface that a dozen companies met bi-monthly throughout 1990 to develop a new model (Kaplan and Norton, 1996, vii).
10Many dissertations have been based on balanced scorecard concepts. For example, Deem (2009) conducted a study that found a positive relationship of balanced scorecard effectiveness and organizational culture.
11This is not for lack of improvement opportunities in accounting. Simply reducing the time typically required to close the books would be of great benefit.
12Kaizen blitz(SM) is a service mark term of the Association of Manufacturing Excellence.
13An extensive example later in the chapter shows the unintended negative effect of inventory reduction on the income statement.
14The vast majority of recent budget research concerns governmental budgeting, which has unique issues (Kelly and Rivenbark, 2008) and will not be addressed here.
15Due to space constraints, most textbooks illustrate quarterly budgets (Hilton, 2009, Chapter 9; Garrison et al., 2010, Chapter 9), but companies need budgets prepared on at least a monthly basis in order to accurately predict cash needs and when it might be possible to invest extra cash.
16It is the author’s experience that marketing people make the most sophisticated presentations.
17If an organization has more than one constraint, the typical accounting recommendation is to use linear programming to find the best product mix. This material is frequently skipped by accounting professors.
18The 80 units of Product Z would require 400 minutes on Resource 2, the 90 units of Product X would use 1800 minutes, and 10 units of Product Y would use the final 200 minutes. In reality, capacity usage would not be scheduled at 100 percent, but a lower capacity availability for all resources would not change the essential results presented here.
19For example, labor allocated according to minutes spent on each product; fixed manufacturing overhead allocated based on total variable manufacturing costs, only whole units may be sold, etc.
20Located on the Web at: www.mhprofessional.com/TOCHandbook.
21Three pools, Planning, Processing, and Support, along with individual drivers, are used to allocate all costs to products and arrive at total product profit per unit as shown in cells G128-J135 of the “Throughput_Examples” spreadsheet located at: www.mhprofessional.com/TOCHandbook.
22Revenues minus variable cost of sales, minus other