 How does TOC accounting work?
TOC accounting is accepted by accountants.
T = Throughput
OE = Operating Expense
I = Inventory
NP = Net Profit
ROI = Return on Investment
NP = T - OE
ROI = NP / I
To increase NP, increase T and reduce OE.
To increase ROI, increase NP and reduce I.
Define Inventory?
Inventory is all of the money the company has invested in things it intends to sell. It includes all
of the company facilities and equipment.
Define Operating
Expense?
Operating expense is all the money the company spends to turn inventory into throughput.
What is Throughput?
Throughput is the rate at which the organization accumulates units of the goal. For a profit-making
company, Throughput (T) is revenue minus totally variable cost.
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