Theory of Constraints Handbook - James Cox Iii [764]
23See a complete illustration of the Throughput format in the second spreadsheet of the file entitled “InventoryReductionExample” located at www.mhprofessional.com/TOCHandbook.
24See the section on direct or variable costing income statements, which contain all the elements of a Throughput income statement.
25Only 10 units of Product Y are planned for production, therefore 10 × .07 = 0.7.
26Total weekly wages of $4800, divided by 9600 (40 hr × 60 min × 4 resources) total labor minutes. This is the actual cost of labor per minute; the traditional applied rate of $0.53333 is based on expected production matching demand which requires 9000 labor minutes.
27This problem originally was pointed out in Goldratt (1990, 97–99).
28[$183 throughput (contribution margin) for Product Y] × 2 units = $366.
29Note that many companies using traditional costing also (incorrectly) would include savings in fixed overhead costs that will merely be transferred to other products.
30See the “Total Time Used/Week” schedule—P27: U33—in the Throughput Example file located at www. mhprofessional.com/TOCHandbook.
31See Throughput_Examples spreadsheet located at www.mhprofessional.com/TOCHandbook, cells CH1: CO40.
32Accountants customarily carry costs to four significant digits to the right of the decimal so that aggregated totals from computing costs for many units will be more precise. For a more in-depth look at this issue, see Eden and Ronen (2007).
33$40–$29.97 = $10; $10 × 100 units (90 for Product X and +10 for Product Y) = $1000.
3490 units for Product X and 50 units for Product Y.
35See the Throughput_Examples spreadsheet located at www.mhprofessional.com/TOCHandbook, cells CQ1: CZ40.
36Operating income would drop from $12,858 to $7,858, a decrease of $5,000, the cost of the change. See the Throughput_Examples spreadsheet, cells BV47:CF82 at www.mhprofessional.com/TOCHandbook.
37See the Throughput_Examples spreadsheet, located at www.mhprofessional.com/TOCHandbook, cells CH47:CP82.
38While recent cost and management accounting texts acknowledge TOC, attempt to define it, and recognize its connection to the contribution-margin-per-unit-of-constraint decision, they do not address the impact of a constraint on numerous other operating decisions such as make versus buy, adding or dropping product lines, or special orders.
39Boeing has used this approach upon occasion to clean up its WIP inventory (Henkoff, 1998; Skapinker, 1998).
40Since it is merely a timing issue, if inventory ever increases back to original amounts the income discrepancy will disappear.
41Quantities of materials held should be a function of (1) frequency of supplier delivery, (2) company ability to reliably predict consumption levels during supplier lead time, and (3) vendor reliability in meeting promised shipment dates and in meeting specified quality (Goldratt, 1990, 108).
42Many TOC practitioners simply use Throughput/Inventory, but the above formula more correctly matches the traditional definition of inventory turns.
43Unavailability of credit was experienced by many businesses during the recession of late 2008, 2009, and the first part of 2010.
44Find at: http://www.nasba.org/nasbaweb/NASBAWeb.nsf/FNAL/CandidateBulletin?opendocument. Business Environment and Content requirements begin on p. 29. Accessed August 29, 2009. (Section VI, C, 5, p. 33, states that candidate responsibilities include “Management philosophies and techniques for performance improvement such as Just-in-time (JIT), Quality, Lean, Demand Flow, Theory of Constraints, and Six Sigma.”)
45The Certified Management Accountant examination sponsored by the Institute of Management Accountants has also updated its Content Specification Outline to include TOC and TA, effective May 1, 2010.
46Numerous threads to this effect can be found