[hasbro21]

Thank you very much! Yes, ‘old’ type of engine is no longer available.

It is not a book question. It is a real situation we face now in our project.

[hasbro21]

Oh, I see. Just too many problems solved for today. Loosing attention 🙂

I will surely watch your lectures sir, thank you so much!

[hasbro21]

Oh, I can see now. Loosing attention 🙂

I will surely watch your lectures, thank you so much!

[hasbro21]

Oh, now I see. Thank you!

[hasbro21]

Hi there,

Considering the problem above, we must exclude the inventory movement from our TPAR calculation, so if we have:

Sales: $28,000
Materials purchased: $13,000
Opening material inventory: $7,250
Labour costs $6,900
Overheads $4,650
No any closing inventory.

Our TPAR is ($28,000-$13,000)/($6,900+ $4,650) = 1.3

However, as it stated in the book – Throughput accounting aims to DISCOURAGE inventory building, so the ratios do not take account of inventory movements.
Doesn’t it make sense, in this case, to include Opening material inventory of $7,250 in our TPAR and thereby, decrease it? That is:

TPAR is ($28,000-$13,000-$7,250)/($6,900+ $4,650) = 0.67

In this case, the manager will be ENCOURAGED to decrease the amount of inventory being held, because this figure will decrease his performance indicator, i.e TPAR. Otherwise, the manager simply doesn’t care about the stock since it is ignored in his performance evaluation. Or I misunderstand the concept? Thank you in advance.

[Author]

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