Throughput Accounting Calculator
For deciding whether a job is actually worth running
Throughput, net profit and return, the TOC way
takiconsulting.nz
Three numbers run a business in Theory of Constraints terms. Throughput is the rate money comes in. Operating expense is what it costs to keep the doors open. Investment is what is tied up inside.
The part that trips people is truly variable cost. That is only what changes because you made one more unit: materials, subcontract, freight out, sales commission. Not wages, not rent, not the machine. Those are operating expense whether the job runs or not.
Get that one distinction right and jobs your costing system calls losers often turn out to be the ones paying the bills.
One product or job
Only what you would not spend if you did not make this one. Materials, subcontract, freight out, commission.
Optional. Time this unit spends on your bottleneck, not total production time.
The whole business
Everything else. Wages, rent, power, admin, depreciation.
Optional. Money tied up: stock, work in progress, plant.
Optional, and the interesting one. Whatever your current system spreads onto each unit.
Add a selling price and a number of units and the numbers appear here.
Do you need a hand with this?
The arithmetic here is the easy part. Getting truly variable cost right, and knowing which step really is your constraint, is where this goes wrong, and both of those change the answer completely.
Send it through and I will look at it properly. Doing this on factory floors since 2005, and 300 businesses later. You will get a straight answer about what I would do next, and whether that is something you need me for at all.
Your throughput accounting calculator is sent with the message. No charge, no obligation.
Stuck on it?
These are simple to draw and hard to fill in honestly. If you want a second pair of eyes on yours, that is a thirty minute conversation and it costs nothing.
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