APPLICATION OF THROUGHPUT ACCOUNTING IN NIGERIA IMPORT AND EXPORT INDUSTRIES
TO THE STUDY
Throughput Accounting (TA) is a principle-based
and simplified management accounting approach that provides managers with
decision support information for enterprise profitability improvement
(Wikipedia, 2015). TA is relatively new in management accounting. It is an
approach that identifies factors that limit an organization from reaching its
goal, and then focuses on simple measures that drive behavior in key areas
towards reaching organizational goals. TA was proposed by Eliyahu M. Goldratt
as an alternative to traditional cost accounting. As such, Throughput
Accounting is neither cost accounting nor costing because it is cash focused
and does not allocate all costs (variable and fixed expenses, including
overheads) to products and services sold or provided by an enterprise (Eliyahu,
Goldratt & Cox, 2013). Considering the laws of variation, only costs that
vary totally with units of output e.g. raw materials, are allocated to products
and services which are deducted from sales to determine Throughput. Throughput
Accounting is a management accounting technique used as the performance measure
in the Theory of Constraints (TOC). It is the business intelligence used for
maximizing profits, however, unlike cost accounting that primarily focuses on
'cutting costs' and reducing expenses to make a profit, Throughput Accounting
primarily focuses on generating more throughput (Corbett, 2014). Conceptually,
Throughput Accounting seeks to increase the speed or rate at which throughput
is generated by products and services with respect to an organization's
constraint, whether the constraint is internal or external to the organization.
Throughput Accounting is the only management accounting methodology that
considers constraints as factors limiting the performance of organizations
When cost accounting was developed in the 1890s,
labor was the largest fraction of product cost and could be considered a
variable cost. Workers often did not know how many hours they would work in a
week when they reported on Monday morning because time-keeping systems were
rudimentary. Cost accountants, therefore, concentrated on how efficiently
managers used labor since it was their most important variable resource. Now
however, workers who come to work on Monday morning almost always work 40 hours
or more; their cost is fixed rather than variable. However, today, many
managers are still evaluated on their labor efficiencies, and many
"downsizing," "rightsizing," and other labor reduction
campaigns are based on them. Bragg (2015) argues that, under current
conditions, labor efficiencies lead to decisions that harm rather than help
organizations. Throughput Accounting, therefore, removes standard cost
accounting's reliance on efficiencies in general, and labor efficiency in
particular, from management practice. Many cost and financial accountants agree
with Goldratt's critique, but they have not agreed on a replacement of their
own and there is enormous inertia in the installed base of people trained to
work with existing practices.
accounting is an organization's internal set of techniques and methods used to
maximize shareholder wealth. Throughput Accounting is thus part of the
management accountants' toolkit, ensuring efficiency where it matters as well
as the overall effectiveness of the organization. It is an internal reporting
tool (Corbett, 2014). Throughput Accounting improves profit performance with
better management decisions by using measurements that more closely reflect the
effect of decisions on three critical monetary variables.
1.2 STATEMENT OF THE
The important role of exports and
imports industry in the economy cannot be overemphasized. Exports and imports
play an integral role in determining the trade balance of a country. As a
result, the dynamics of the relationship between these two variables hold
significant importance for the economy and have attracted the interest of
researchers in testing the nature of relationships between exports and imports.
This is because an unsustainable trade deficit indicates a violation of
international budget constraints over time. If the trade deficits should
persist, the domestic interest rates will be very high and such an economy will
metamorphosed into a heavily indebted country which may affects the welfare of
the citizens. However, accountability in the import and export industry in
Nigeria will be effective if throughput accounting is applied in the sector
because one of the most important aspects of
Throughput Accounting is the relevance of the information it produces.
Throughput Accounting reports what currently happens in business functions such
as operations, distribution and marketing. It does not rely solely on financial
accounting reports (that still need to be verified by external auditors) and is
thus relevant to current decisions made by management that affect the business
now and in the future.
1.3 OBJECTIVES OF THE STUDY
following are the objectives of this study:
provide an overview on throughput accounting.
examine the application of throughput accounting in import and export industry
identify the factor limiting the effective application of throughput accounting
in the import and export industry in Nigeria.
1.4 RESEARCH QUESTIONS
is throughput accounting?
throughput accounting be applied in import and export industry in Nigeria?
are the factors limiting the effective application of throughput accounting in
the import and export industry in Nigeria?
OF THE STUDY
are the significance of this study:
results from this study will educate the general public, stakeholders in the accounting
industry, government of Nigeria and policy makers on the effect of application
of throughput accounting in the import and export industry in Nigeria with a
view of identifying its effect on performance and accountability.
2. This research will also serve as a
resource base to other scholars and researchers interested in carrying out
further research in this field subsequently, if applied will go to an extent to
provide new explanation to the topic
OF THE STUDY
study on the application of throughput accounting in Nigeria import and export
industry will cover the overview of throughput accounting and the outcome of
the application of throughput accounting in Nigeria import and export industry.
LIMITATION OF STUDY
Financial constraint- Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
Time constraint- The researcher will
simultaneously engage in this study with other academic work. This consequently
will cut down on the time devoted for the research work.
Steven (2015) - Throughput Accounting - ISBN 978-0-471-25109-5.
Thomas (2014) - Throughput Accounting - ISBN 0-88427-158-7.
M. Goldratt and Jeff Cox (2013). - The Goal - ISBN 0-620-33597-1.
Eric (2009) - Theory of Constraints and its Implications for Management
Accounting - ISBN 978-0-88427-116-1.