just in time and backflush

Topics: Variable cost, Costs, Cost Pages: 20 (2735 words) Published: September 23, 2013
01

technical

throughput
and backflush
Throughput accounting and backflush accounting
have been developed in response to relatively
modern advances in manufacturing:
1 The increased reliance by manufacturing
businesses on sophisticated and expensive
facilities and machinery. This greatly increases
the proportion of costs which are fixed. (This
was one reason why activity-based costing
has become more important: if fixed costs
are more significant they should be dealt with
more accurately.)
2 A recognition that holding inventory is likely to be
a waste of resource.
3 The increased use of just-in-time manufacturing,
so that inventory (particularly work-in-progress)
is much reduced and its valuation is therefore
less important.
Throughput accounting
Throughput accounting has a very direct
relationship with decision making and performance
management. It begins by focusing on what an
organisation’s purpose is – its goal – and seeks
to help organisations attain their purpose by
increasing their ‘goal units’. The approach can be
applied to both profit-seeking and not-for-profit
organisations, provided meaningful goal units can
be identified.

Throughput accounting has a very direct relationship
with decision making and performance management. It
focuses on what an organisation’s purpose is – its goal
– and helps attain it by increasing their ‘goal units’.

RELEVANT to ACCA QUAlification paper F5
Example 1
Take a not-for-profit organisation which
performs a medical screening service in three
sequential stages:
1 Take an X-ray.
2 Interpret the result.
3 Recall patients who need further investigation/tell
others that all is fine.
The ‘goal unit’ of this organisation will be to
progress a person through all three stages. The
number of people who complete all the stages is
the organisation’s throughput, and the organisation
should seek to maximise its throughput. However,
there will always be a limit to throughput, and
the resource which sets that limit is called
the ‘bottleneck resource’.Adding more detail to the
medical screening process above:
Process

Take an X-ray

Time/patient
(hours)
0.25

Total hours
available/week
40

Interpret the
result

0.10

20

Recall patients
who need further
investigation/
tell others that
all is fine

0.20

30

You can easily see from this table that the
maximum number of patients (goal units) who can
be dealt with in each process is:
X-rays:
40/0.25 = 160
Interpret results: 20/0.10 = 200
Recall etc:
30/0.20 = 150

Studying Paper F5?
Performance objectives 12, 13 and 14 are linked

accounting
accounting
So, the recall procedure is the bottleneck resource.
Throughput, and thereby the organisation’s
performance, cannot be improved until that part of
the process can deal with more people. Therefore,
to improve throughput:
1 Ensure there is no idle time in the bottleneck
resource, as that will be detrimental
to overall performance (idle time in a
non‑bottleneck resource is not detrimental to
overall performance).
2 See if less time could be spent on the
bottleneck activity.
3 Finally, increase the bottleneck resource available.
In Example 1, increasing the bottleneck resource,
or the efficiency with which it is used, might be
relatively cheap and easy to do because this is
a simple piece of administration while the other
stages employ expensive machinery or highly skilled
personnel. There is certainly no point in improving
the first two stages if things grind to a halt in
the final stage; patients are helped only when the
whole process is completed and they are recalled
if  necessary.
The traditional approach to decision making in
a profit-seeking organisation is to use contribution
analysis. The contribution per unit is the difference
between the selling price of a unit and the marginal
cost of a unit, where marginal cost consists of the
material, variable...
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