And, the understanding and subsequent elevation of the system’s constraints will enhance the performance of the system. Within the above mentioned context, throughput accounting has become an important development in the modern conventions of accounting allowing management accountants to comprehend the significance and contribution of the constrained resources to aggregate profitability. The concept of throughput accounting does not largely focus on the efficiencies and performance based on the efficiencies instead it takes into account the different types of constraints which can be in the shape of time constraints and policy constraints. Steps involved in throughput accounting Goldratt (1990) contends that the working principles of throughput accounting or theory of constraints extend a focus to a continuous improvement process and this principle is comprised of five focusing steps as elaborated below: (1) Identify the system’s constraint(s): Constraints may be relating to physical (e. g.
machines, people, materials, demand level) or managerial (Rahman, 1998, p. 338). Generally, organizations have limited physical constraints but face numerous managerial constraints in the form of procedures, policies, methods and rules. In this regard, Goldratt (1993) devised a technique called a Current Reality Tree for identifying policy constraints.
It remains utterly important to identify the nature and type of constraints and necessary to prioritize them by keeping in view their impacts over the objectives and aims of the organization. (2) Decide how to exploit constraints pertaining to the system: If the constraint is of physical nature, in that case, efforts must be taken to make the constraint as effective as possible. On the other hand, the managerial constraint should not be exploited but efforts must be taken to eliminate and replace them with a policy supporting increased throughput. (3) Subordinate every step to the above decision: This means that every component of the system (non-constraints) must be adjusted in order to support the maximum efficiency and effectiveness of the constraint because constraints dictate a firm’s throughput; and resource synchronization along with the constraint facilitates the most effective method of utilization of resource.
Moreover, non-constraint resources comprise of productive capacity (capacity supporting the constraint throughput) and the idle capacity (capacity to safeguard against system disruptions and capacity not currently required) (Lockamy and Cox, 1994).
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