Theory of Constraints method of accounting

Read “The Goal” by Eliyahu Goldrat. 2. Assume an acquaintance, Bill Jennings, owns Fantastic Fumiture Manufacturing (FFM), a growing manufacturing company. FFM manufactures a number of different models of chairs, tables, beds, dressers, and entertainment units, which they sell to small, mid-size, and large retailers. Bill is interested in updating his operations and accounting functions, as both are out-of-date and unsophisticated. As part of this process, Bill has been hying to leam as much as he can about operations management and accounting, and he just finished reading The Goal.” He found many of the operations management ideas (e.g., bottlenecks) to be intuitive and easy to understand. However, he is confused about how the cost accounting information in the book seemed to lead the managers to make poor decisions. For example, Lou (the narrative’s accountant) concludes that he has begun to believe that “if it comes from cost accounting it must be wrong” (p. 307). Using the concepts discussed in this course, write a memo to Bill that includes the following elements: a. Explain the differences among traditional cost accounting methods, variable (or direct) costing methods, and the throughput costing approach advocated in “The Goal: Discuss the advantages and disadvantages of each. b. Discuss two additional cost accounting concepts that are related to a decision made in “The Goal° and could help improve Bill’s decisions. Be sure to discuss concepts that would be relevant to FFM, and use specific examples of decisions that could be improved through the appropriate use of cost accounting information. c. Create and use at least one visual aid (e.g., bar graph, line graph, etc.) to illustrate your points. 3. Below is a list of several enrichment questions. Please note that your memo does not necessarily need to answer these questions directly. Rather, these questions are intended to help you get started. a. In what ways can cost accounting help managers make better decisions? In what ways can cost accounting lead managers to make poor decisions? b. What type of cost accounting information is Lou referring to? What kinds of decisions is this information useful for? What kinds of decisions is this information not useful for? c. How are unit costs calculated? d. How do long-run decisions differ from short-run decisions? e. Is it ever useful to use accounting metrics to incentivize employee behavior? What are the potential benefits? What are the potential drawbacks? f. How are opportunity costs reflected in cost accounting? How might this lead to poor decisions? How might managers avoid these pitfalls?