Throughput Term Paper Samples
Definition of Terms in Accounting The managerial accounting class is very important to prospective professionals in the accounting and management fields. This class imparts skills that will prove important in decision making when running an organization. The class gives managers vital information on the provisions of accounting so as to prepare themselves in deciding on various issues at the organizational level. This allows the managers the opportunity to perform control functions within the organization in a better manner.
Additionally, the managerial accounting class helps managers to dispense their mandate with competence. In the managerial accounting class, several terminologies are used to describe various concepts in accounting as they relate to management. This paper will explore the definitions of several of these terminologies as they are used in management. This description will take the approach of the traditional textbook definition. The paper will also compare these definitions to the definition preferred by Goldratt in his book, The Goal. Definition of Terms
Throughput assumes different meanings depending on the context upon which the definition of throughput is considered. Throughput takes a different meaning in computer technology compared to the meaning it takes in the business. I will consider the definition of throughput towards the business inclination. Throughput is defined as the productivity of a process, a system or a machine over a given period. Throughput is expressed in the term that is relevant to the context in which the term is considered. Some of the figures of merit used include cash turnover, output per hour and number of orders that are shipped. As defined in this way, throughput relates to the rate at which inputs and outputs move through the production process (Daly 37). Throughput as defined by Goldratt in his book, The Goal is different from the textbook definition of throughput as described above. Throughput entails the rate at which money is generated from a system through the sales of products. This definition as expressed by Goldratt in his book, The Goal is different from the textbook definition because it specifies money as the figure of merit in the definition of throughput. In fact, Goldratt in his book, The Goal disparages the thought that production is a figure of merit in the definition. The rationale for this is that a product that is not sold to generate money, it does not amount to throughput. Goldratt argues that, even though, the wording of this definition is simple, it is precise, as is the necessity for any measurement (Goldratt & Cox 66).
Just like throughout, inventory also assumes different meanings depending on the context in which the definition of the term is considered. I will consider the definition of inventory towards the business inclination. Inventory is a terminology used to describe the products and materials held by a business, the purpose for which is repair or resale. It is the list of stock or merchandise, raw materials, work in progress and finished products on hand that an organization has. In this definition of inventory, the focus is on the products, their amount, their description and the reason for which the materials are held by the organization. Some of the reasons include uncertainties in the supply chain, hence the holding of raw materials as part of the inventory. At other times, seasonal demand for products motivates some organizations to develop inventory in order to have enough product when demand increases. Other reasons for holding inventory include the ability of some products to appreciate over time, for instance in the brewing industry (Dayal, Peter & Kireet 51). The traditional definition of inventory, as discussed above, is very different compared to the definition offered by Goldratt. In the book The Goal, inventory is defined as the amount of money that an organization invests in purchasing items that it intends to sell in order to generate money. Under this definition, the figure of merit is the money that is invested in developing the material that is held by an organization. The difference between the two definitions of inventory is that while the figures of merit in the traditional definition of merit is the product or material that is held by an organization, the figure of merit in the definition by Goldratt is the money invested in developing the product and material held with an aim of selling them at a later date (Goldratt & Cox 66). This implies that the cost of the raw materials that are used in developing the final product is included in the inventory. When defined in this way, inventory acts as a measurement for the system because a numerical value can be appended to the amount held in inventory.
The textbook definition of operational expense is the costs or expenses that are incurred in the running of the core operations of an organization. More precisely, the operational expense relates the expenses incurred by an organization during its daily operations. For instance, the operational expense of a manufacturing business would be the cost of the raw materials, the cost of the prerequisites to run a production line, and the cost of labor. The cost of labor would naturally be factored in when estimating the operational expense for a given product. This also means that the operational expense does not include interest expense and non recurring items such as legal judgments, accounting adjustment and other items on the income statement that do relate directly to the core business operations of an organization (Chowdhary 37). The traditional definition of operational expense is different from the definition by Goldratt. In the book The Goal, the operational expense is defined as the amount of money spent by the system towards converting the inventory into throughout. It is important to decipher the various terminologies that are used in the definition of operational expense. Earlier on, the definitions of throughput and inventory as per Goldratt were presented. The merit figure for throughput is sales while the merit figure for inventory is the value in monetary terms that are invested in the material held with the intention of sale. An operational expense, in this case, is the amount of money that a system is used in order to convert the value in the inventory into money through sales, the merit figure for throughput.
Besides the differences in the definition of operational expense and the definition by Goldratt, one other difference is in the elements included in the operational expense. According to Goldratt, the value added into a product through direct labor is not part of the operational expense. Even though Goldratt acknowledges that the value added as a result of direct labor might be part of the inventory, he argues that it does not have to be. In arguing this was, Goldratt eliminates the confusion regarding whether a dollar spent is an expense or an investment (Goldratt & Cox 67). Just like the other terminologies, efficiency assumes different meanings in different contexts. In the accounting or financial sense, efficiency relates to a level of performance where processes use the lowest number or proportion of inputs in order to produce the highest amount of outputs. Efficiency entails the elimination of all wastages in the all the processes so that the least amount of inputs is used. However, in order to achieve efficiency, process optimization is required. It is important ensure that the process is well designed in order to prevent bottlenecks that limit efficiency. This means that the human resource has to be sufficiently trained in order to work at the optimal level. This will avoid any losses in productivity resulting from low performance. It will also enhance optimal resource utilization by the employees. Additionally, the allocation of resources to various components of the process should be done in a manner that optimizes resource utilization. It amounts to wastage is more resources than are required are allocated to a given component of the production process. In the same breadth, the concept of efficiency requires that resource allocation below the minimum requirement affects productivity, and by that, the efficiency of the production process.
Conclusion In conclusion, the managerial accounting class is very important to future career prospects. Among other things, it has imparted in me the knowledge that is important in making the management decision. Besides the concepts learnt in class, reading this book has contributed to the knowledge base gained. The book has offered a different approach to understanding various managerial accounting terms. The author approaches the concepts in a different manner, by that enhancing one's understanding. As discussed above, the definition of different terms is done in simply worded sentences. This encourages the mastery of the concepts. Additionally, the presentation of the book mimics an argument or debate between two people. The back and forth style enhances learning. Through the book, I am better prepared to for my other classes, because the knowledge gained forms a basis for understanding other concepts in my course.
Chowdhary, Mayank. Constraint Management: Throughput, Operating Expenses and Inventory. New Delhi: Global India Publications, 2009. Print.
Daly, Herman. Ecological Economics and Sustainable Development: Selected Essays of Herman Daly. Cheltenham, UK: Edward Elgar, 2007. Print
Dayal, Raghubir, Peter Zachariah, and Kireet Rajpal. Inventory and Credit Management. New Delhi: Mittal Publications, 1996. Print.
Goldratt, Eliyahu and Cox, Jeff. The Goal: A Process of Ongoing Improvement. Great Barrington. North River Press, 2008. Print.