UNSW Business School
ACCT2522 Management Accounting for
Decision Analysis
Term 1, 2023
1
Topic 5: Managing Time and the Theory of Constraints
Week 7
Overall Theme
This week we focus on the third of the customer value parameters – time. We explore how time
can be managed to create and/or sustain value creation and be a source of competitive advantage
for the firm. In particular, we examine and apply the Theory of Constraints (TOC). TOC is a
management philosophy that focuses on the management of constraints in order to improve
organizational performance. The application of TOC will assist in the effective management of time
and costs, and allow for-profit organizations to achieve their goal of making money.
Although we primarily focus our attention on TOC in this tutorial, managing time has important
implications also on managing cost and managing quality!
Desired Learning Outcomes and Essential Reading
• Moodle e-book on Topic 5 (Managing Time and the Theory of Constraints)
• Langfield-Smith et al. Chapter 16 pp. 624-627
After completing this topic, you should be able to:
1. Understand the concept of “time-based management”
2. Understand the use of Theory of Constraints as a performance measurement system and its critique
of conventional measures
3. Appreciate the technical design aspects of TOC, including the identification of constraints and
product mix decisions
4. Appreciate how constraining resources and process variability might be managed
5. Understand the issues surrounding the use of TOC principles in practice
2
Tutorial Question (must be prepared prior to the tutorial)
Question One
Insearch Productions Pty Ltd produces two types of bike frames (Frame X and Frame Y). Frame
X passes through four processes: Cutting, Welding, Polishing, and Painting. Frame Y uses three
of the same processes: Cutting, Welding, and Painting. Each of the four processes employs ten
workers who work eight hours each day. Frame X sells for $40 per unit, and Frame Y sells for $55
per unit. Raw materials are the only unit-level variable expense. The materials cost for Frame X is
$20 per unit, and the materials cost for Frame Y is $25 per unit. Insearch’s accounting system has
provided the following additional information about its operations and products:
Frame X Frame Y
Resource name Resource available Usage: per unit Usage: per unit
Cutting labour 4800 minutes 15 minutes 10 minutes
Welding labour 4800 15 30
Polishing labour 4800 15 NA
Painting labour 4800 10 15
Market demand for X: 200 per day
Market demand for Y: 100 per day
Note: Any production interruptions can be corrected within 2 days.
Insearch’s general manager, Kent Fyne, has just implemented a bonus system where workers can
receive a small bonus if they exceed their production targets. However, Kent is unsure what to do
with his newly appointed engineer, Kip Loeking. Kip has been keen to find ways to improve the
functioning of the Cutting machines and the Polishing machines. However, by doing so Kip has
caused some unexpected problems with these machines, which in turn has meant that some
workers have to conduct extra set up and maintenance activities.
Kent is also troubled by the fluctuating prices of some direct materials. In the last few months, the
per unit direct material costs vary by up to 50%. Added to this concern is that one of Insearch’s
competitors, Outreach, has recently dropped its prices and in doing so has made a big dent on the
demand of Insearch’s products.

Required:
1 Apply the 5 steps in the TOC approach to Insearch Productions. Specifically, discuss:
a. What is Insearch’s major binding constraint? Support your answer with calculations.
b. Suggest three ways that Insearch exploit its binding constraint. Explain your answer, and
support your answer with calculations where appropriate.
c. What does “subordinate all other activities” mean? Why is it an important step in managing
Insearch’s resources?
d. What does “elevating the constraint” mean? Provide one example of how Insearch may be
able to elevate its binding constraint.
e. What is the fifth TOC step? Assuming that the binding constraint you have identified in (a)
has been elevated, what is the next binding constraint Insearch needs to focus on?
2 Suppose that Kip the engineer has proposed a process design change that will increase the
polishing time for Frame X from 15 to 23 minutes per unit and decrease the welding time from
15 minutes to 10 minutes per unit (for Frame X). The cost of process redesign would be $10,000.
How long would it take to “break even” if the process redesign were to go ahead? Should the
proposal be accepted? What step in the TOC process does this proposal represent?
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3 Provide two potential issues surrounding the implementation/use of TOC principles in Insearch.
Your answers must be specific to the case. (Hint: consider the TOC implications of Insearch’s
bonus scheme, Kip’s improvement effort, and the fluctuations of demand and raw material
prices).
Question Two
Katanya Lyon managers the “Lyon King” hamburger stand at her local weekend market. She sells
only two types of burgers: the MegaMeat burger with the works, and the PowerVeg burgers.
Katanya employs the following family members:
• Sister Tankaya prepares bread rolls (including toasting and buttering). She gets cranky a lot
because the toaster often overheats and the rolls get burnt and have to be thrown away;
• Brother Donnie, who is in charge of grilling (either meat patties or veggie patties; as well as
grilling onion and frying eggs). Donnie only grills meat patties and veggie patties in different
batches; he will never allow both meat patties and veggie patties to sit on the grill at the same
time. Donnie believes that “mixed-grilling” is disrespectful to all the vegetarians out there. In
contrast with Tankaya, Donnie is very relaxed, even when the grill breaks down (which happens
twice a month on average).
• Mother Bonnie, who performs cutting and assembling activities (cutting lettuce and tomatoes,
putting together the patties, eggs and the salad ingredients);
• Katanya looks after cash receipts herself.
Katanya has a simple operation with only three major pieces of equipment: two toasters and one
(very expensive) BeefEater Barbeque SL4000 Unit. Three suppliers provide all the main
ingredients: the local butcher “Butch-a-Way” provides the meat patties and eggs, a vegetable
supplier “All-Vegged-Out” supplies the salad ingredients; and “We-Bake” bakery supplies the bread
rolls.
Further, Katanya believes in specialisation; each employee focuses only on his/her own process.
In particular, Katanya does not trust Donnie with the money, and she would never contemplate
getting involved in the grilling process herself (too smoky for her). In addition to cutting and
assembling, Bonnie (who is good at haggling) is also in charge of negotiating deals with the
suppliers. By purchasing in bulks (especially just before the market closes for the day) she often
manages to get large discounts.
Required: **Make sure that your answers are specific to the case!**
(a) Identify examples of the following potential constraints in Katanya’s operation:
• Demand/market constraint
• Supply constraint
• Material constraint
• Capacity constraint
• Managerial constraint
• Behavioural constraint
(b) Briefly explain how the concepts behind TOC can help Katanya to better manage time,
cost and quality in her hamburger business.
(c) Assuming that Grilling is the constraining resource, identify one performance measure
each of time, cost and quality that Katanya should consider, in order to support a TOC
approach to operating the Lyon King.