ACCA Applied Skills · Performance Management
Throughput Accounting for ACCA Performance Management
Throughput accounting treats only direct material as a truly variable cost and aims to maximise throughput (sales less material cost) per unit of the bottleneck resource. To solve questions, find the bottleneck, calculate throughput per bottleneck hour, rank products, and use TPAR to test whether a product is worth making.
What this chapter covers
Throughput accounting is a performance management technique built for businesses where one resource limits output. It defines throughput as sales revenue less totally variable costs, usually direct material only. Labour and overheads are treated as fixed in the short run and grouped as conversion cost (also called factory cost).
The chapter has four linked parts. You learn the definitions first. Then you meet the Theory of Constraints and the idea of a bottleneck. Next you use the Throughput Accounting Ratio (TPAR) to judge products and efficiency. Last, you rank products and plan production when a resource is short.
It connects directly to limiting factor analysis, marginal costing and relevant costing in PM. It also links to performance measurement and to cost management techniques such as JIT and ABC. Questions often ask you to compare throughput accounting with standard absorption or marginal costing, so you need the theory as well as the numbers.
Throughput accounting appears in both objective and written questions. In Section A and Section B you may get a single calculation, such as throughput per bottleneck hour or TPAR, and objective questions are marked all or nothing, so accuracy matters. In Section C it can sit inside a longer question on limiting factors or performance measurement, where you must calculate, rank and then comment on the result. The calculations are short and rule-based, so this chapter rewards focused practice with reliable marks.
Throughput accounting: topics in the order to study them
- 1Throughput Accounting Principles and DefinitionsYou need the meaning of throughput, conversion cost and the cost-per-factory-hour idea before any calculation makes sense.
- 2Theory of Constraints and Bottleneck ResourcesOnce you know the definitions, you learn why the bottleneck drives output and how to identify and manage it.
- 3Throughput Accounting Ratio (TPAR)TPAR uses throughput per bottleneck hour and cost per bottleneck hour, so it builds on the bottleneck idea.
- 4Product Ranking and Production Planning under ConstraintsThis pulls everything together: you rank products by throughput per bottleneck unit and plan output within the limits.
How to prepare Throughput accounting
Aim to be able to do the calculations quickly and explain the logic in a few sentences. Work in this sequence.
- Learn the core definitions: throughput = sales − direct material (and other totally variable costs); conversion cost = all other factory costs; both are treated per unit of the bottleneck resource.
- Practise spotting the bottleneck: compare the hours each product needs on each resource with the hours available, and find the resource that runs out first.
- Calculate throughput per product unit, then throughput per bottleneck hour. Write the units clearly each time.
- Calculate cost per bottleneck hour = total conversion cost ÷ bottleneck hours available. Then TPAR = throughput per bottleneck hour ÷ cost per bottleneck hour.
- Rank products by throughput per bottleneck hour, allocate bottleneck time in that order, and respect any demand limits.
- Compare your ranking with a contribution-per-limiting-factor ranking, and note when the answers differ and why.
- Finish with timed mixed questions, including a written part that asks you to comment on TPAR above or below 1 and on how to relieve the bottleneck.
Common mistakes in Throughput accounting
Deducting direct labour when calculating throughput.
Fix: Deduct only direct material and other totally variable costs. Treat labour as part of conversion cost unless the question says it is variable.
Ranking products by throughput per unit instead of per bottleneck hour.
Fix: Always divide by the bottleneck time each unit needs before ranking.
Choosing the wrong bottleneck.
Fix: Compare hours needed for planned demand with hours available for each resource. The one with the largest shortfall is the bottleneck.
Using the wrong hours when calculating cost per bottleneck hour.
Fix: Divide total conversion cost by the bottleneck hours available, unless the question gives a different basis.
Writing TPAR as cost ÷ throughput.
Fix: Remember: throughput on top, cost below. A figure above 1 is favourable.
Giving one-line written answers with no link to the scenario.
Fix: State the point, then tie it to the figures, for example which product has the lowest TPAR and what the business should do about it.
Last-day revision: Throughput accounting
- Throughput = sales revenue − totally variable costs (usually direct material).
- Conversion cost = labour and overheads, treated as fixed in the short run.
- Throughput accounting aims to maximise throughput per unit of the bottleneck resource.
- A bottleneck is the resource that limits output of the whole system.
- Cost per bottleneck hour = total conversion cost ÷ bottleneck hours available.
- Throughput per bottleneck hour = product throughput ÷ bottleneck hours per unit.
- TPAR = throughput per bottleneck hour ÷ cost per bottleneck hour.
- TPAR above 1 means the product earns more throughput than the cost of the bottleneck time it uses; below 1 means it does not cover that cost.
- Rank products by throughput per bottleneck hour, not by throughput per unit.
- Raising bottleneck capacity or cutting its time per unit raises TPAR.
- Non-bottleneck resources should not be run beyond what the bottleneck needs, as extra stock adds no throughput.
- Labour is not treated as variable, so throughput accounting can rank products differently from marginal costing.
Throughput accounting practice questions
- Kestrel Ltd has 900 bottleneck hours available. Product P: throughput $48 per unit, 4 hours per unit, demand 150 units. Product R: throughpu…
- Marlow Co makes products A and B using a single bottleneck machine. A: selling price $90, materials $30, machine time 4 minutes. B: selling …
- Dalton Co has a bottleneck machine. Throughput per machine hour is $20 for product S and $14 for product T. Management proposes to make more…
- Trent Ltd uses throughput accounting. Product Q sells for $50 per unit, with direct material cost of $18 per unit, direct labour of $10 per …
- Marlow Co has a product with a selling price of $90 and material cost of $30 per unit. Each unit needs 0.5 hours on the bottleneck. Total fa…
- Which of the following best describes the objective of throughput accounting?
- Which statement about a non-bottleneck resource in a throughput accounting system is correct?
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 throughput in throughput accounting?
Throughput is sales revenue minus totally variable costs, which is usually direct material only. It is the rate at which a business generates money through sales. In PM, you normally calculate it per unit and then per bottleneck hour.
How is TPAR different from contribution per limiting factor?
Both rank products using a scarce resource. TPAR also compares throughput per bottleneck hour with cost per bottleneck hour, so it tells you whether a product covers the cost of that time. The difference in results comes from how labour is treated: variable in contribution, part of conversion cost in throughput.
What does a TPAR above 1 mean?
It means throughput per bottleneck hour is greater than the conversion cost per bottleneck hour. The product adds more than the cost of the time it uses. Below 1 means it does not cover that cost, so you should look at price, material cost or bottleneck time.
Is throughput accounting tested in objective questions or written ones?
Both. Short calculations such as throughput per hour or TPAR suit objective questions, which are marked all or nothing. Longer questions may ask you to rank products, calculate TPAR and comment on actions to improve it.