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Throughput Accounting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Throughput Accounting

  • This topic has 3 replies, 2 voices, and was last updated 12 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 22, 2012 at 9:56 am #55577
    nkmile64
    Member
    • Topics: 6
    • Replies: 12
    • ☆

    What does Direct Material Cost refer to in a THROUGHPUT ACCOUNTING environment?
    Is it the period’s Material Purchases or the Cost of Goods Sold for the period?

    The reason I’m asking this is I’ve stumbled on a past question (“OWL”) where apart from Sales
    figures for the folowing elements are also provided:

    Opening Stock of Materials
    Direct Materials Purchases
    Closing Stock of Materials

    Should I use Sales – Direct Material Purchases or
    Sales – Cost of Goods Sold
    where Cost of Good Sold = Opening Stock + Purchases – Closing Stock

    BRGDS

    November 22, 2012 at 6:06 pm #108258
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    You should really use purchases. You certainly would not cost of goods sold because this would include labour etc..

    Strictly, throughput accounting assumes that the company operates on a JIT basis and holds minimum inventory of materials, so that the materials used will equal the materials purchased.

    November 22, 2012 at 8:14 pm #108259
    nkmile64
    Member
    • Topics: 6
    • Replies: 12
    • ☆

    Thanks for your response!

    I understand that all other costs apart from Materials, that is Labour, Variable and Fixed Production Overheads etc are treated as fixed costs in Throughput Accounting, at least in the short-term. What puzzles me though is that the figures I mentioned earlier i.e.

    Opening Stock
    Purchases and
    Closing Stock

    are directly extracted from the Inventory of Materials, that is they do not include any labour costs or any other kind of costs apart from materials.

    Furthermore, all relevant questions I’ve looked at, they all make use of Standard Costs Cards for the products and these cards refer to Direct Materials used in the production; not purchases for that period.

    I suppose it is assumed that material purchases = materials used as you also mention.

    I am unable to understand though how we should treat a case where there are actually some inventory levels.

    THANKS A LOT

    November 25, 2012 at 8:09 am #108260
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54680
    • ☆☆☆☆☆

    Yes – it is assumed that purchases = usage, because strictly throughput accounting assumes a JIT approach to inventory management.

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