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Management Accounting · Alternative cost accounting principles

Throughput Accounting and the Throughput Accounting Ratio (TPAR)

Updated 11 October 2026 · Fact-checked

Throughput accounting maximises profit by making the best use of the bottleneck resource. Throughput is sales revenue minus totally variable costs, usually direct materials. Rank products by throughput per bottleneck hour. The throughput accounting ratio (TPAR) is throughput per bottleneck hour divided by factory cost per bottleneck hour. A TPAR above 1 is good.

Understand Throughput Accounting

Every business has a bottleneck. This is the resource that limits output, such as a machine with too few hours. You cannot sell more than the bottleneck lets you make. So the bottleneck decides how much profit you earn.

Throughput is the rate at which a business turns inputs into sales. In ACCA MA it is sales revenue less totally variable costs. Totally variable costs are usually direct materials and any bought-in items. Direct labour is treated as a fixed cost in the short term, because staff are paid whether or not they are busy. This is the main difference from marginal costing, which deducts all variable costs, including labour.

Since the bottleneck is scarce, you judge each product by how much throughput it earns per hour of bottleneck time. This is throughput per bottleneck hour. Rank products on it and make the highest first. The method is similar to limiting factor analysis, but it uses throughput instead of contribution.

The total factory cost covers all operating costs except direct materials: labour and overheads. Divide it by the total bottleneck hours available to get the cost per bottleneck hour. The throughput accounting ratio (TPAR) compares what a product earns per bottleneck hour with what an hour costs. A TPAR above 1 means the product earns more than the cost of the factory time it uses. Below 1 means it does not cover its cost.

To improve results, you can raise throughput, cut operating costs, or reduce stock. You can also elevate the bottleneck by adding capacity. When you do, the bottleneck may move to another resource, and you must reanalyse.

Key formulas to remember

Throughput
Throughput = Sales revenue − Totally variable costs (usually direct materials)
Direct labour is normally treated as a fixed cost unless the question says it is truly variable.
Throughput per unit of bottleneck resource
Throughput per bottleneck hour = Throughput per unit ÷ Bottleneck hours per unit
Use this to rank products when the bottleneck is limited.
Factory cost per bottleneck hour
Cost per bottleneck hour = Total factory cost ÷ Total bottleneck hours available
Total factory cost = all operating costs except direct materials.
Throughput accounting ratio (TPAR)
TPAR = Throughput per bottleneck hour ÷ Factory cost per bottleneck hour
Equivalent: Return per hour ÷ Cost per hour. Above 1 is acceptable. Higher is better.
Return per factory hour
Return per factory hour = (Sales price − Material cost) ÷ Time on bottleneck resource
Same as throughput per bottleneck hour.

How to solve Throughput Accounting questions

Use this method for any throughput accounting question. Read the question for the wording that tells you which measure is wanted.

  1. 1Identify the bottleneck resource. It is the one where demand for hours exceeds hours available, or the one the question names.
  2. 2Work out throughput per unit for each product: selling price minus direct materials and other totally variable costs. Do not deduct labour unless told it is variable.
  3. 3Divide throughput per unit by the bottleneck hours per unit. This gives throughput per bottleneck hour.
  4. 4Rank the products from highest to lowest throughput per bottleneck hour.
  5. 5Allocate the available bottleneck hours in rank order, up to each product's maximum demand, until the hours run out.
  6. 6If the TPAR is asked for, calculate the factory cost per bottleneck hour: total factory cost ÷ bottleneck hours available.
  7. 7Divide throughput per bottleneck hour by cost per bottleneck hour. State whether the TPAR is above or below 1 and what that means.
  8. 8If asked for profit, total throughput of the production plan minus total factory cost.

Quickest way: Rank by throughput per bottleneck hour, then divide by cost per hour

When to use it: Use this in Section A objective test questions where you need a ranking, a TPAR or a best product, and time is tight.

  1. Compute (price − materials) for each product. Ignore labour and overheads at this stage.
  2. Divide by the bottleneck minutes or hours per unit. Check the units first and convert minutes to hours if needed.
  3. Pick the highest figure for ranking questions.
  4. For a TPAR, find total factory cost ÷ total bottleneck hours, then divide the product's return per hour by it.
  5. Sense check: if the TPAR is below 1 the product loses money on a throughput basis.

Common mistakes in Throughput Accounting

  • Deducting direct labour when calculating throughput.

    Students are used to contribution in marginal costing, where labour is a variable cost.

    Fix: In throughput accounting, deduct only totally variable costs, normally materials. Treat labour as part of factory cost unless the question says otherwise.

  • Ranking products by throughput per unit instead of per bottleneck hour.

    The per unit figure is quick to calculate and looks like the answer.

    Fix: Always divide by the bottleneck hours used per unit before ranking. A product with high throughput per unit can use too much bottleneck time.

  • Inverting the TPAR by dividing cost per hour by return per hour.

    The two measures look alike and the order is easy to forget.

    Fix: Remember: return over cost. TPAR above 1 should be good. If your answer suggests the opposite, check you did not flip it.

  • Using the wrong time units, such as minutes for one figure and hours for another.

    Data often gives minutes per unit but hours available.

    Fix: Convert everything to the same unit before dividing. Write the unit beside each number.

  • Using total costs including materials in the factory cost per hour.

    Students take all costs given in the question.

    Fix: Factory cost excludes direct materials. Include labour and overheads only.

  • Thinking throughput accounting is the same as marginal costing.

    Both subtract variable costs from sales.

    Fix: The difference is which costs are treated as variable. Throughput accounting counts only materials and bought-in items, and it focuses on the bottleneck.

Worked examples

Example 1

A company makes two products, X and Y. Machine time is the bottleneck, with 600 hours available. X sells for $50, uses $20 of materials and needs 2 machine hours. Y sells for $70, uses $25 of materials and needs 4 machine hours. Which product should be made first, and what is its throughput per machine hour?

Show the solution
  1. Throughput per unit of X = 50 − 20 = $30.
  2. Throughput per unit of Y = 70 − 25 = $45.
  3. Throughput per machine hour of X = 30 ÷ 2 = $15.
  4. Throughput per machine hour of Y = 45 ÷ 4 = $11.25.
  5. X earns $15 per machine hour and Y earns $11.25, so X ranks above Y.

Answer: Make X first, with throughput of $15 per machine hour.

Example 2

A factory has 1,000 bottleneck hours available. Total factory cost (labour and overheads) is $12,000. Product Z sells for $60, uses $24 of materials and needs 3 bottleneck hours per unit. Calculate the TPAR for Z.

Show the solution
  1. Throughput per unit = 60 − 24 = $36.
  2. Throughput per bottleneck hour = 36 ÷ 3 = $12.
  3. Factory cost per bottleneck hour = 12,000 ÷ 1,000 = $12.
  4. TPAR = 12 ÷ 12 = 1.0.

Answer: The TPAR is 1.0. Z earns exactly what the factory time costs, so it only breaks even on a throughput basis. Any TPAR below 1 would mean it loses money.

Exam tips

  • Read for the word bottleneck or limiting resource. Throughput questions always hinge on it.
  • Check whether labour is described as variable. Default to treating it as a fixed factory cost in throughput accounting.
  • In multiple response questions, check each statement against the definition: throughput is sales less totally variable costs, and TPAR above 1 is good.
  • Number entry questions often want a TPAR to two decimal places. Do not round early.
  • Be ready for short comparison questions: throughput accounting focuses on the bottleneck and treats labour as fixed, while marginal costing deducts all variable costs.

Practice questions from Alternative cost accounting principles

Throughput Accounting in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Throughput Accounting: frequently asked questions

What is the difference between throughput accounting and marginal costing?

Marginal costing deducts all variable costs, including labour, to find contribution. Throughput accounting deducts only totally variable costs, normally materials. It also centres on the bottleneck and measures return per bottleneck hour.

How do you calculate the throughput accounting ratio?

Divide throughput per bottleneck hour by factory cost per bottleneck hour. Throughput per hour is (price − materials) ÷ bottleneck hours per unit. Factory cost per hour is total labour and overhead cost ÷ bottleneck hours available.

What does a TPAR above 1 mean?

It means the product earns more throughput per bottleneck hour than the hour costs. The product adds to profit. A TPAR below 1 means the product does not cover its factory costs.

Is throughput accounting the same as limiting factor analysis?

They are similar because both rank products by return per scarce resource. The difference is the measure used. Limiting factor analysis uses contribution, while throughput accounting uses throughput, which usually treats labour as a fixed cost.