Throughput accounting is an offshoot of variable cost accounting that treats direct material costs as the only variable cost, while all other costs are assumed to be fixed, explains Richard J. Lukesh of Turnaround.org. The accounting approach was developed by Eliyahu Goldratt as part of the Theory of Constraints paradigm.Continue Reading
In contrast with traditional accounting approaches, throughput accounting focuses on the impact of financial decisions on an entire system and not just on the particular area on which an investment is made, notes Accounting Tools. This is because the cost of production is borne by an entire system and not by the individual item that is the object of the production process. For instance, a car manufacturer would still have to meet costs such as salaries, utilities and insurance even during periods when no vehicles are made. For this reason, throughput accounting primarily focuses on the production process and not the products. This focus encourages system-wide changes, notes Lukesh.
From the overarching perspective of throughput accounting, there are only three ways of boosting profitability: reducing investment, reducing fixed costs or increasing throughput. Throughput refers to less variable expenses such as commissions and costs of direct materials. The level of investment needed in order to give a production system the capacity to make a certain number of units and operating expenses, typically the costs incurred in maintaining the production system, is also taken into account when calculating profitability in throughput accounting.Learn more about Accounting
Cost accounting is a type of managerial accounting that considers budgets and the cost to produce items. Managers use the results from cost accounting to make decisions that maximize profits while minimizing expenses, according to Reference.com.Full Answer >
Common accounting terminology includes cash flow, cost of goods sold, generally accepted accounting practices and general ledger. Other terms are accounts payable, accounts receivable, balance sheet, assets and liabilities.Full Answer >
"Miscellaneous expense" is a general ledger account used for small expenses not recorded in other accounts, according to the accounting dictionary on Simplestudies. Accounting Coach notes that it is generally better to set up a more specific expense account than to list an expense as miscellaneous.Full Answer >
In the context of accounting, computers are typically used to record, save and analyze data, explains Jeffrey Romano of Clever Accounting. The computing programs used for accounting range from general-purpose spreadsheet software to specialized applications.Full Answer >