Throughput Accounting (TA) improves profit performance with better management decisions by using measurements that more closely reflect the effect of decisions on three critical monetary variables (throughput, investment (AKA inventory), and operating expense. It is thus part of the management accountants’ toolkit, ensuring efficiency where it matters as well as the overall effectiveness of the organization.
TA is the only management accounting methodology that considers constraints as factors limiting the performance of organizations. It is the business intelligence used for maximizing profits. In contrast to cost accounting that primarily focuses on ‘cutting costs’ and reducing expenses to make a profit, TA focuses on the speed or rate at which throughput is generated by products and services with respect to an organization’s constraint, whether the constraint is internal or external to the organization.
Throughput Accounting is a principle-based and comprehensive management accounting approach that provides managers with decision support information for enterprise profitability improvement. TA is relatively new in management accounting. It is an approach that identifies factors that limit an organization from reaching its goal, and then focuses on simple measures that drive behavior in key areas towards reaching organizational goals.
Aevia — Consider the Source