Editing Inventory (section)

===Theory of constraints cost accounting===
[[Eliyahu M. Goldratt]] developed the [[Theory of Constraints]] in part to address the cost-accounting problems in what he calls the "cost world." He offers a substitute, called [[throughput accounting]], that uses [[Throughput (business)|throughput]] (money for goods sold to customers) in place of output (goods produced that may sell or may boost inventory) and considers labor as a fixed rather than as a variable cost. He defines inventory simply as everything the organization owns that it plans to sell, including buildings, machinery, and many other things in addition to the categories listed here. Throughput accounting recognizes only one class of variable costs: the truly variable costs, like materials and components, which vary directly with the quantity produced

Finished goods inventories remain [[balance sheet|balance-sheet]] assets, but labor-efficiency ratios no longer evaluate managers and workers. Instead of an incentive to reduce labor cost, throughput accounting focuses attention on the relationships between throughput (revenue or income) on one hand and controllable operating expenses and changes in inventory on the other.