Q1. What is the main goal of Throughput Accounting in TOC?
A. Eliminate taxes
B. Increase long-term profit
C. Reduce labor hours
D. Cut marketing budget
✅ Answer: B. Increase long-term profit
Q2. In Throughput Accounting, how is inventory treated?
A. As an asset
B. As revenue
C. As a liability
D. As fixed capital
✅ Answer: C. As a liability
Q3. What is considered the most important financial focus in Throughput Accounting?
A. Cutting costs
B. Increasing inventory
C. Reducing taxes
D. Increasing throughput
✅ Answer: D. Increasing throughput
Q4. What distortion does traditional accounting promote according to TOC?
A. Overproduction to inflate inventory
B. Underpayment of wages
C. Employee satisfaction
D. Zero investment
✅ Answer: A. Overproduction to inflate inventory
Q5. Which of the following is not a core measure in Throughput Accounting?
A. Throughput
B. Investment
C. Operating Expense
D. Gross Margin
✅ Answer: D. Gross Margin
Q6. What does Throughput measure in TOC?
A. Total revenue
B. Sales minus truly variable costs
C. Inventory turnover
D. Total cost savings
✅ Answer: B. Sales minus truly variable costs
Q7. Which of the following is not considered a truly variable cost in TOC?
A. Raw materials
B. Sales commissions
C. Freight
D. Labor with fixed salaries
✅ Answer: D. Labor with fixed salaries
Q8. What does the term "Investment" represent in Throughput Accounting?
A. Only cash in bank
B. Money tied up in physical assets
C. Total revenue
D. Employee salaries
✅ Answer: B. Money tied up in physical assets
Q9. Which of the following is considered an Operating Expense in TOC?
A. Sales commissions
B. Taxes and payroll
C. Raw materials
D. Freight
✅ Answer: B. Taxes and payroll
Q10. What is the formula for Net Profit in Throughput Accounting?
A. Operating Expense – Investment
B. Throughput – Operating Expense
C. Revenue – Investment
D. Sales – Raw Material Cost
✅ Answer: B. Throughput – Operating Expense
Q11. What is the formula for Return on Investment (ROI) in Throughput Accounting?
A. Net Profit / Investment
B. Net Profit / Sales
C. Throughput / Investment
D. Operating Expense / Sales
✅ Answer: A. Net Profit / Investment
Q12. Productivity in Throughput Accounting is calculated as:
A. Operating Expense / Investment
B. Net Profit / Operating Expense
C. Throughput / Operating Expense
D. Investment / Sales
✅ Answer: C. Throughput / Operating Expense
Q13. Investment Turns is defined as:
A. Net Profit / Investment
B. Throughput / Investment
C. Sales / Investment
D. Throughput / Operating Expense
✅ Answer: B. Throughput / Investment
Q14. What is the top priority in decision-making using Throughput Accounting?
A. Reduce labor
B. Cut operating expense
C. Increase throughput
D. Increase inventory
✅ Answer: C. Increase throughput
Q15. Which traditional accounting practice can lead to “paper profits”?
A. Accumulating cash
B. Writing off losses
C. Overproducing and inflating inventory value
D. Reducing headcount
✅ Answer: C. Overproducing and inflating inventory value
Q16. What does TOC believe about cutting expenses?
A. It’s the most effective path to profitability
B. It has limitations; throughput should be the focus
C. It should be the first step in cost control
D. It is irrelevant
✅ Answer: B. It has limitations; throughput should be the focus
Q17. In TOC, why is inventory viewed as a liability?
A. It takes up space
B. It earns interest
C. It ties up cash that could be used better elsewhere
D. It cannot be sold
✅ Answer: C. It ties up cash that could be used better elsewhere
Q18. What happens when a company produces items not truly needed?
A. Increased profits
B. Paper profit and asset inflation
C. Reduced investment
D. High ROI
✅ Answer: B. Paper profit and asset inflation
Q19. Why is labor not considered a truly variable cost in TOC?
A. It's part of capital
B. It fluctuates daily
C. It's usually a fixed salary, not tied to output
D. It has no effect on throughput
✅ Answer: C. It's usually a fixed salary, not tied to output
Q20. The goal of Throughput Accounting is aligned with:
A. Reducing cost of goods sold
B. Maximizing short-term savings
C. Improving long-term profit through system optimization
D. Increasing tax compliance
✅ Answer: C. Improving long-term profit through system optimization
Q21. What is a major weakness of traditional cost accounting as per TOC?
A. It is difficult to teach
B. It encourages inventory buildup
C. It does not use technology
D. It does not calculate expenses
✅ Answer: B. It encourages inventory buildup
Q22. Which expense is excluded from throughput calculation in TOC?
A. Raw materials
B. Utilities
C. Sales commissions
D. Freight
✅ Answer: B. Utilities
Q23. What is emphasized the least in Throughput Accounting decision-making?
A. Reducing expenses
B. Increasing throughput
C. Eliminating bottlenecks
D. Improving customer sales
✅ Answer: A. Reducing expenses
Q24. Which of the following is a derived measure in Throughput Accounting?
A. Operating Expense
B. Investment Turns
C. Freight Cost
D. Sales Volume
✅ Answer: B. Investment Turns
Q25. Which metric would directly reflect the efficiency of operating costs in TOC?
A. ROI
B. Net Profit
C. Productivity
D. Inventory
✅ Answer: C. Productivity
Q26. Which variable costs are subtracted from sales to get Throughput?
A. Only labor
B. Only fixed overhead
C. Truly variable costs like raw materials and sales commissions
D. All expenses
✅ Answer: C. Truly variable costs like raw materials and sales commissions
Q27. According to TOC, what has no upper limit for improvement?
A. Cutting expenses
B. Increasing throughput
C. Reducing inventory
D. Optimizing taxes
✅ Answer: B. Increasing throughput
Q28. Why is traditional inventory accounting misleading, according to TOC?
A. Inventory isn’t taxed
B. Inventory doesn’t add value
C. It inflates profit without actual sales
D. Inventory costs are hard to track
✅ Answer: C. It inflates profit without actual sales
Q29. Which of the following reflects asset utilization in TOC?
A. Productivity
B. Investment Turns
C. ROI
D. Operating Expense
✅ Answer: B. Investment Turns
Q30. TOC recommends that management decisions should primarily aim to:
A. Reduce inventory first
B. Cut labor costs
C. Improve throughput
D. Follow GAAP strictly
✅ Answer: C. Improve throughput
Q31. What does "Investment Turns" indicate in Throughput Accounting?
A. Frequency of investing in new equipment
B. Number of times capital is reallocated
C. How efficiently investment is converted into throughput
D. The amount of interest earned on inventory
✅ Answer: C. How efficiently investment is converted into throughput
Q32. Which of these best describes Throughput in TOC terms?
A. Total factory output
B. Units sold regardless of cost
C. Revenue minus truly variable costs
D. Gross sales
✅ Answer: C. Revenue minus truly variable costs
Q33. Which metric helps determine how well a company is using its resources to generate throughput?
A. Net Profit
B. ROI
C. Productivity
D. Investment Turns
✅ Answer: C. Productivity
Q34. In Throughput Accounting, what does the term “Operating Expense” include?
A. Only salaries
B. Expenses that vary directly with sales
C. All costs excluding truly variable costs
D. Raw materials
✅ Answer: C. All costs excluding truly variable costs
Q35. What action is likely discouraged by Throughput Accounting but encouraged by traditional accounting?
A. Holding excess inventory
B. Minimizing throughput
C. Eliminating bottlenecks
D. Paying performance bonuses
✅ Answer: A. Holding excess inventory
Q36. Throughput Accounting's view on fixed labor costs is that they are:
A. Always variable
B. Ignored completely
C. Included in Throughput
D. Treated as Operating Expenses
✅ Answer: D. Treated as Operating Expenses
Q37. In Throughput Accounting, the focus shifts from cost-cutting to:
A. Shareholder dividends
B. Revenue forecasting
C. Increasing throughput
D. Cutting workforce
✅ Answer: C. Increasing throughput
Q38. Why does TOC criticize traditional accounting's treatment of inventory?
A. It understates company value
B. It fails to account for future growth
C. It encourages overproduction and masks true performance
D. It misrepresents employee productivity
✅ Answer: C. It encourages overproduction and masks true performance
Q39. How does Throughput Accounting define “Net Profit”?
A. Revenue – Investment
B. Throughput – Operating Expense
C. Gross Margin – Fixed Costs
D. Total Sales – Labor
✅ Answer: B. Throughput – Operating Expense
Q40. Which is NOT typically a goal of Throughput Accounting?
A. Increase throughput
B. Decrease inventory
C. Decrease taxes
D. Reduce operating expenses
✅ Answer: C. Decrease taxes
Q41. What is the primary driver of profit in TOC’s Throughput Accounting?
A. Payroll cuts
B. Higher inventory
C. Throughput growth
D. Expense reduction
✅ Answer: C. Throughput growth
Q42. Labor is only considered a variable cost in Throughput Accounting when:
A. Salaries are above market rate
B. It is 100% performance-based (piece-rate)
C. Bonuses are given monthly
D. Overtime is avoided
✅ Answer: B. It is 100% performance-based (piece-rate)
Q43. Why is "cutting expenses" seen as a limited strategy in TOC?
A. Because expenses are hard to track
B. It affects morale
C. Because it can’t go below zero, while throughput has no upper bound
D. Because it reduces employee hours
✅ Answer: C. Because it can’t go below zero, while throughput has no upper bound
Q44. What does TOC suggest for maximizing ROI?
A. Cut payroll
B. Maximize productivity and throughput
C. Reduce advertising
D. Buy more inventory
✅ Answer: B. Maximize productivity and throughput
Q45. TOC views inventory as a liability primarily because:
A. It’s expensive to count
B. It causes logistical issues
C. It ties up cash and may never generate sales
D. It doesn’t show on the balance sheet
✅ Answer: C. It ties up cash and may never generate sales
Q46. A company reducing throughput to save on materials is:
A. Applying TOC correctly
B. Likely to increase ROI
C. Misguided according to TOC principles
D. Cutting waste efficiently
✅ Answer: C. Misguided according to TOC principles
Q47. The biggest flaw in traditional accounting that TOC corrects is:
A. Overpaying staff
B. Tax mismanagement
C. Misalignment of accounting behavior with profitability goals
D. Lack of budgeting tools
✅ Answer: C. Misalignment of accounting behavior with profitability goals
Q48. In Throughput Accounting, ROI can also be interpreted as:
A. Expense-to-profit ratio
B. Sales vs. salary ratio
C. How efficiently investment turns into profit
D. Working capital cycle
✅ Answer: C. How efficiently investment turns into profit
Q49. Which combination of metrics forms the basis of Throughput Accounting?
A. ROI, TCO, and Margin
B. Throughput, Investment, Operating Expense
C. Sales, Cost of Goods, Inventory
D. Margin, CAPEX, ROI
✅ Answer: B. Throughput, Investment, Operating Expense
Q50. A key difference between traditional and throughput accounting lies in the emphasis on:
A. Total assets
B. Bookkeeping
C. Cutting cost vs. maximizing flow
D. Debt to equity ratio
✅ Answer: C. Cutting cost vs. maximizing flow
Q51. Which of the following would NOT be a concern for Throughput Accounting?
A. Maximizing customer throughput
B. Minimizing idle inventory
C. Increasing product variety
D. Reducing Operating Expense
✅ Answer: C. Increasing product variety
Q52. What is the first question TOC managers ask when analyzing a new decision?
A. Can it cut costs?
B. Will it reduce headcount?
C. Will it increase throughput?
D. Is it tax deductible?
✅ Answer: C. Will it increase throughput?
Q53. According to TOC, what limits the value of reducing Investment or Operating Expenses?
A. Diminishing returns
B. Constraints in marketing
C. They are finite; throughput can be scaled infinitely
D. Low engagement
✅ Answer: C. They are finite; throughput can be scaled infinitely
Q54. In TOC, focusing only on cost-cutting can:
A. Enhance product design
B. Lower customer loyalty
C. Improve market share
D. Lead to missed profit opportunities
✅ Answer: D. Lead to missed profit opportunities
Q55. Which behavior is positively reinforced by Throughput Accounting?
A. Stockpiling finished goods
B. Producing beyond market demand
C. Eliminating bottlenecks and driving sales
D. Reducing marketing budget
✅ Answer: C. Eliminating bottlenecks and driving sales
Test your knowledge with 50+ MCQs on Throughput Accounting from the Theory of Constraints. Learn about core metrics like Throughput, Investment, Operating Expenses, ROI
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