Chapter 5 Limiting Factors and Throughput Accounting5章限制因素和产出会计.docx

1、Chapter 5 Limiting Factors and Throughput Accounting5章限制因素和产出会计Chapter 5 Limiting Factors and Throughput Accounting1. Objectives1.1 Identify limiting factors in a scarce resource situation and select an appropriate technique.1.2 Determine the optimal production plan where an organization is restrict

2、ed by a single limiting factor.1.3 Explain the concept of optimized production technology.1.4 Explain the theory of constraints.1.5 Explain the concept of throughput accounting.1.6 Calculate and interpret a throughput accounting ratio (TPAR).1.7 Compare the techniques of limiting factors and through

3、put accounting in the determination of optimal production.2. Limiting Factors2.1Limiting FactorsA limiting factor is any factor that is in scarce supply and that stops the organisation from expanding its activities further, that is, it limits the organisations activities.2.2 An organisation might be

4、 faced with just one limiting factor (other than maximum sales demand) but there might also be several scarce resources, with two or more of them putting an effective limit on the level of activity that can be achieved.2.3 Examples of limiting factors include sales demand and production constraints.

5、(a) Labour. The limit may be either in terms of total quantity or of particular skills.(b) Materials. There may be insufficient available materials to produce enough units to satisfy sales demand.(c) Manufacturing capacity. There may not be sufficient machine capacity for the production required to

6、meet sales demand.2.4 It is assumed in limiting factor analysis that management would make a product mix decision or service mix decision based on the option that would maximise profit and that profit is maximized when contribution is maximised (given no change in fixed cost expenditure incurred). I

7、n other words, marginal costing ideas are applied.(a) Contribution will be maximised by earning the biggest possible contribution per unit of limiting factor. For example if grade A labour is the limiting factor, contribution will be maximised by earning the biggest contribution per hour of grade A

8、labour worked.(b) The limiting factor decision therefore involves the determination of the contribution earned per unit of limiting factor by each different product.(c) If the sales demand is limited, the profit-maximising decision will be to produce the topranked product(s) up to the sales demand l

9、imit.2.5 In limiting factor decisions, we generally assume that fixed costs are the same whatever product or service mix is selected, so that the only relevant costs are variable costs.2.6 When there is just one limiting factor, the technique for establishing the contribution-maximising product mix

10、or service mix is to rank the products or services in order of contribution-earning ability per unit of limiting factor.2.7Example 1Sausage makes two products, the Mash and the Sauce. Unit variable costs are as follows.MashSauce$Direct materials13Direct labour ($3 per hour)63Variable overhead1187The

11、 sales price per unit is $14 per Mash and $11 per Sauce. During July the available direct labour is limited to 8,000 hours. Sales demand in July is expected to be as follows.Mash3,000 unitsSauce5,000 unitsRequired:Determine the production budget that will maximize profit, assuming that fixed costs p

12、er month are $20,000 and that there is no opening inventory of finished goods or work in progress.Solution:1. Determine the limiting factorMashSaucesTotalLabour hours per unit2 hrs1 hrSales demand3,000 units5,000 unitsLabour hours needed6,000 hrs5,000 hrs11,000 hrsLabour hours available8,000 hrsShor

13、tfall3,000 hrsLabour is the limiting factor on production.2. Identify the contribution earned by each product per unit of scarce resource, that is, per labour hour worked.MashSauce$Sales price1411Variable cost87Unit contribution64Labour hour per unit2 hrs1 hrContribution per labour hour (= per unit

14、of limiting factor)$3$4Ranking213. Determine the budgeted production and sales.ProductUnitsHours neededContribution per unitTotal$Sauces5,0005,000420,000Mashes (Bal.)1,5003,00069,0008,00029,000Less: fixed costs20,000Profit9,000Conclusion:(1) Unit contribution is not the correct way to decide priorit

15、ies.(2) Labour hours are the scarce resource, therefore contribution per labour hour is the correct way to decide priorities.(3) The Sauce earns $4 contribution per labour hour, and the Mash earns $3 contribution per labour hour. Sauces therefore make more profitable use of the scarce resource, and

16、should be manufactured first.Question 1Triproduct Limited makes and sells three types of electronic security systems for which the following information is available.Standard cost and selling prices per unitProductDay scanNight scanOmni scan$Materials70110155Manufacturing labour405570Installation la

17、bour243244Variable overheads162028Selling price250320460Fixed costs for the period are $450 000 and the installation labour, which is highly skilled, is available for 25 000 hours only in a period and is paid 8 per hour.Both manufacturing and installation labour are variable costs.The maximum demand

18、 for the product is:Day scanNight scanOmni scan2,000 units3,000 units1,800 unitsRequired:(a) Calculate the shortfall (if any) in hours of installation labour. (2 marks)(b) Determine the best production plan, assuming that Triproduct Limited wishes to maximise profit. (5 marks)(c) Calculate the maxim

19、um profit that could be achieved from the plan in part (b) above. (3 marks)(d) Having carried out an investigation of the availability of installation labour, the firm thinks that by offering $12 per hour, additional labour would become available and thus overcome the labour shortage.Required:Based

20、on the results obtained above, advise the firm whether or not to implement theproposal. (5 marks) (Total 15 marks)3. Throughput Accounting (產量會計)3.1 Optimized production technology (OPT)3.1.1 During the 1980s Goldratt and Cox (1984) advocated a new approach to production management called OPT. OPT i

21、s based on the principle that profits are expanded by increasing the throughput of the plant. The OPT approach determines what prevents throughput being higher by distinguishing bottleneck and non-bottleneck resources.3.1.2 A bottleneck might be a machine whose capacity limits the throughput of the

22、whole production process. The aim is to identify bottlenecks and remove them or, if this is not possible, ensure that they are fully utilized at all times.3.1.3 Non-bottleneck resources should be scheduled and operated based on constraints within the system, and should not be used to produce more th

23、an the bottlenecks can absorb. The OPT philosophy therefore advocates that non-bottleneck resources should not be utilized to 100% of their capacity, since this would merely result in an increase in inventory.3.2 Theory of constraints3.2.1 Goldratt and Cox (1992) describe the process of maximizing o

24、perating profit when faced with bottleneck and non-bottleneck operations as the theory of constraints (TOC).3.2.2 The TOC aims to increase throughput contribution while simultaneously reducing inventory and operational expenses. However, the scope for reducing the latter is limited since they must b

25、e maintained at some minimum level for production to take place at all. In other words, operational expenses are assumed to be fixed costs.3.2.3 The TOC adopts a short-run time horizon and treats all operating expenses (including direct labour but excluding direct materials) as fixed, thus implying

26、that variable costing should be used for decision-making, profit measurement and inventory valuation.3.2.4 It emphasizes the management of bottleneck activities as the key to improving performance by focusing on the short-run maximization of throughput contribution.3.2.5Example 1 Illustration of the

27、 TOCMachine X can process 1,000 kg of raw material per hour, machine Y 800 kg. Of an input of 900 kg, 100 kg of processed material must wait on the bottleneck machine (machine Y) at the end of an hour of processing.The traditional view is that machines should be working, not sitting idle. So if the

28、desired output from the above process were 8,100 kgs, machine X would be kept in continual use and all 8,100 kgs would be processed through the machine in nine hours. There would be a backlog of 900 kgs 8,100 (9 hrs 800) of processed material in front of machine Y, however. All this material would r

29、equire handling and storage space and create the additional costs related to these non-value added activities. Its processing would not increase throughput contribution.3.3 Throughput Accounting (TA)3.3.1 Galloway and Waldron (1988) advocate an approach called throughput accounting to apply the TOC

30、philosophy.3.3.2Throughout AccountingThroughput accounting is a product management system which aims to maximise throughput, and therefore cash generation from sales, rather than profit. A just in time (JIT) environment is operated, with buffer inventory kept only when there is a bottleneck resource

31、.3.3.3 TA for JIT is said to be based on three concepts.(a) Concept 1In the short run, most costs in the factory (with the exception of materials costs) are fixed (the opposite of ABC, which assumes that all costs are variable). These fixed costs include direct labour. It is useful to group all these costs together and call them Total Factory Costs (TFC).(b) Concept 2In a JIT environment, all inventory is a bad thing and the ideal inventory level is ze