(c) The meaning of the TA ratio
In a throughput accounting environment, a product is worth producing and selling if its throughput
return per time period is greater than the production cost per time period. This can be measured
by the throughput accounting (TA) ratio. If the ratio is greater than 1, the return exceeds the cost
and the product should be produced.
TA as a control device
Efforts should be made to improve the size of the TA ratio as follows.
(1) Improving throughput ($) per unit by increasing selling price or reducing material cost
per unit. Product B has a very high material cost element ($40).
(2) Improving the throughput return per hour by reducing the time spent on the bottleneck
resource. If product B spent 0.012 hours instead of 0.015 hours on the bottleneck
resource, say, its TA ratio would improve.
The organisation's overall position can be improved by reducing overhead costs and/or by
reducing or eliminating the impact of any bottlenecks. |
