Throughput Accounting (3) Flashcards
Traditional costing (labour costs)
Labour costs and variable overheads are treated as variable costs
Traditional costing (Inventory)
Inventory is valued at total production cost
Traditional costing (Value)
Value is added when an item is produced
Traditional costing (profitability)
Product profitability can be determined by deducting a product cost from selling price
Throughput accounting (fixed costs)
All costs other than materials are seen as fixed in the short-term
Throughput accounting (Inventory)
Inventory is valued at material cost only
Throughput accounting (Value)
Value is added when an item is sold
Throughput accounting (profitability)
Profitability is determined by rate at which money is earned
What are total factory costs?
Fixed production costs including labour
What is return per factory hour?
(Sales revenue - material purchases)/Time on bottleneck reosurces
What is cost per factory hour?
Total factory costs/Time on bottleneck resource
What is TPAR?
Return per factory hour/Cost per factory hour
What is TPAR used to check?
How a product is performing by comparing the returns it delivers with the costs incurred in producing it
What is meant by factory costs or conversion cost?
These are all costs except direct material cost
Why should TPAR exceed 1?
As total throughput should exceed total factory costs otherwise organisation will make a loss
