Internal 1 strategy can have influence over the

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- Internal: 1. Strategy can have influence over the resource capacity. E.g. for quality differentiators, unique raw material on which they differentiate the product quality also means that the resources are very much limited and therefore put constraints over your production. - External. 1. Infrastructure: the ‘non-value’ of being stuck in traffic E.g. for a logistic company, such infrastructure issue can require them to have better scheduling skills and/or more labour hour (higher demand), which can be constraints given their existing capacity (not enough supply). Not always a capacity issue. o Too much demand: removal 1% vehicles=faster 18% traffic. o However, Japanese research suggests capacity is not necessarily the only bottleneck. - Sometimes it is not feasible to solve the problem by simply enhancing capacity. 1. E.g. could be extremely costly to develop new infrastructure or machinery. - With existing theoretical capacity, some behaviour when performing the production/service can also lead to lower practical capacity, which then creates the constraints. - Action controls attempt to regulate desired behaviour, but deviations can occur. Understand the differences between cost accounting and throughput accounting. Theory of Constraints: capture when the constraints will occur. Internal affects organizational faces and how they deal with those constraints. o One way of managing product mix decisions: throughput accounting focuses on maximizing the contribution margin. o Decisions based on internal resource constraints o Basic principles: - Organisations function as a system of activities or processes ('chain'). - Whatever impedes system performance is a ‘constraint’, or ‘bottleneck’. - Focuses on improving overall system performance by removing constraints and strengthening each ‘link’. Throughput (contribution margin) accounting (TA) and TOC o TOC is about the process of identifying and removing constraints that affect the organisation's performance, with the purpose of maximising throughput o Throughput accounting defines: - Throughput: 1. rate at which $ is generated through sales not through production. 2. modified version of the contribution margin: a) definition of variable cost is the key difference between TA and cost accounting. b) TA only account “true variable” cost as VC.
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W10:11/10 - Inventory: all purchases, investments that the organisation intends to sell - Operating expense: all other expenditure incurred to convert inventory into throughput TA vs CA o Traditional cost accounting prioritises (in order): cost minimization/focus on cost side.
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