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Performance Management · Throughput accounting

Product Ranking and Production Planning Under Constraints

Updated 11 October 2026 · Fact-checked

Throughput accounting ranks products by throughput per bottleneck hour, where throughput is selling price less totally variable cost (usually materials). You make the highest-ranked product first, up to its demand limit, until bottleneck hours run out. Then you compare the plan with profit after factory costs.

Understand Product Ranking and Production Planning under Constraints

A bottleneck is the resource that limits output. In the short run, every extra bottleneck hour you use well adds to cash. Hours on other resources add nothing, because those resources have spare capacity.

Throughput is sales revenue less totally variable costs. In ACCA PM, totally variable cost is normally direct material, and sometimes bought-in services or other costs that vary with each unit. Direct labour is treated as a fixed cost unless the question says it is paid per unit. Overheads are factory costs (also called operating expenses). They are fixed in the short run.

To rank products, divide throughput per unit by the minutes or hours each unit uses on the bottleneck. This gives throughput per bottleneck hour. The product with the highest figure earns the most from each scarce hour, so it ranks first.

To plan production, start with rank 1 and make as many units as the demand limit allows. Use the bottleneck hours that remain for rank 2, and so on. The last product made may be only partly met.

This looks like limiting factor analysis. The difference is the cost base. Limiting factor analysis uses contribution, which deducts all variable costs including labour. Throughput accounting deducts only totally variable costs. If labour is treated as fixed, the two methods can rank products differently. Throughput accounting also fits JIT: it discourages building inventory, because stock made from bottleneck time earns nothing until it is sold.

Key rules to remember

Throughput per unit
Throughput = selling price − totally variable cost (usually direct material)
Labour is excluded unless the question says it varies with output.
Throughput per bottleneck hour
Throughput per unit ÷ bottleneck hours per unit
Use this figure to rank products. Highest ranks first.
Total throughput of a plan
Σ (units made × throughput per unit)
Use units actually planned, not demand.
Profit
Total throughput − factory costs
Factory costs are all conversion costs, including labour and overheads.
Bottleneck hours used
Σ (units × bottleneck hours per unit) ≤ hours available
Check this constraint before finalising any plan.

How to solve Product Ranking and Production Planning under Constraints questions

Use this method for any ranking or production planning question on throughput accounting.

  1. 1Identify the bottleneck: the resource where required hours exceed available hours at full demand.
  2. 2Calculate throughput per unit for each product: selling price less totally variable cost.
  3. 3Divide by bottleneck hours per unit to get throughput per bottleneck hour.
  4. 4Rank the products from highest to lowest.
  5. 5Allocate bottleneck hours in rank order, giving each product its maximum demand until hours run out. The last product gets the remaining hours.
  6. 6Calculate total throughput for the plan and deduct factory costs to get profit.
  7. 7If asked, compare with contribution per limiting factor hour, explain any difference in ranking, and comment on practical issues such as customer needs and JIT.

Quickest way: Rank, fill, total

When to use it: Use this in Section B or C when time is short and the bottleneck is already stated.

  1. Write one line per product: throughput ÷ bottleneck hours.
  2. Number the ranks 1, 2, 3.
  3. Fill hours from rank 1 down, writing units and hours used beside each product.
  4. Check total hours equal the hours available.
  5. Multiply units by throughput, add, and subtract factory costs.

Common mistakes in Product Ranking and Production Planning under Constraints

  • Deducting labour when calculating throughput

    Students are used to contribution, which deducts all variable costs.

    Fix: Deduct only materials and other totally variable costs. Treat labour as a factory cost unless told it varies with output.

  • Ranking by throughput per unit, not per bottleneck hour

    The largest throughput looks the most attractive.

    Fix: Always divide by the bottleneck time per unit before ranking.

  • Using the wrong resource as the bottleneck

    Students pick the resource with the most hours used, not the one that is short.

    Fix: Compare hours needed at full demand with hours available for each resource. The largest shortfall is the bottleneck.

  • Exceeding demand limits

    Students spend all hours on the top-ranked product.

    Fix: Cap each product at its maximum demand, then move to the next rank.

  • Forgetting to deduct factory costs for profit

    Total throughput is confused with profit.

    Fix: Profit = total throughput − factory costs. Say so in your working.

Worked examples

Example 1

A firm has a bottleneck machine with 1,200 hours available. Product A: price ₹500, material ₹200, 2 hours, demand 400 units. Product B: price ₹400, material ₹100, 1.5 hours, demand 500 units. Product C: price ₹300, material ₹120, 1 hour, demand 300 units. Factory costs are ₹1,00,000. Rank the products, find the optimal plan and the profit.

Show the solution
  1. Throughput per unit: A = 500 − 200 = ₹300. B = 400 − 100 = ₹300. C = 300 − 120 = ₹180.
  2. Throughput per hour: A = 300 ÷ 2 = ₹150. B = 300 ÷ 1.5 = ₹200. C = 180 ÷ 1 = ₹180.
  3. Ranking: B first (₹200), C second (₹180), A third (₹150).
  4. Demand at full output: B 500 × 1.5 = 750 hours; C 300 × 1 = 300 hours. Total 1,050 hours.
  5. Hours left for A: 1,200 − 1,050 = 150 hours, giving 150 ÷ 2 = 75 units.
  6. Throughput: B 500 × 300 = ₹1,50,000; C 300 × 180 = ₹54,000; A 75 × 300 = ₹22,500. Total = ₹2,26,500.
  7. Profit = 2,26,500 − 1,00,000 = ₹1,26,500.

Answer: Make 500 B, 300 C and 75 A. Total throughput is ₹2,26,500 and profit is ₹1,26,500.

Example 2

Using the data above, suppose direct labour of ₹80 per unit of A, ₹60 per unit of B and ₹50 per unit of C is treated as variable in a limiting factor analysis. Compare the ranking with throughput accounting.

Show the solution
  1. Contribution per unit: A = 300 − 80 = ₹220. B = 300 − 60 = ₹240. C = 180 − 50 = ₹130.
  2. Contribution per bottleneck hour: A = 220 ÷ 2 = ₹110. B = 240 ÷ 1.5 = ₹160. C = 130 ÷ 1 = ₹130.
  3. Limiting factor ranking: B, C, A.
  4. Throughput ranking was also B, C, A.
  5. The plan is therefore the same: 500 B, 300 C and 75 A.
  6. The figures differ because limiting factor analysis deducts labour. Profit is the same only if labour is genuinely a fixed cost in the plan.

Answer: Both methods rank B, C, A, so the optimal mix is the same. Ranking could differ when labour costs vary a lot between products. Throughput accounting treats labour as fixed in the short run.

Exam tips

  • State the bottleneck and why it is the bottleneck before you calculate. Markers give credit for it.
  • Show the throughput per hour for every product in a clear column. Method marks depend on it.
  • In discussion parts, link throughput accounting to JIT: it aims to avoid inventory that does not help meet demand.
  • When asked to compare with limiting factor analysis, name the cost base difference first. Then say whether the ranking changes.
  • Always check the bottleneck hours used against hours available in your final plan.

Practice questions from Throughput accounting

Product Ranking and Production Planning under Constraints: frequently asked questions

What is throughput per bottleneck hour?

It is the throughput of one unit divided by the hours that unit needs on the bottleneck resource. It shows how much each scarce hour earns. Products with the highest figure are made first.

How is throughput accounting different from limiting factor analysis?

Both rank products per scarce hour. Limiting factor analysis uses contribution, which deducts all variable costs. Throughput accounting deducts only totally variable costs, usually materials, and treats labour as a fixed cost.

Is direct labour ever deducted in throughput?

Only if the question states labour varies directly with output, such as pay per unit made. Otherwise treat it as a factory cost.

How does throughput accounting link to JIT?

Both aim to avoid building stock that is not needed. Throughput accounting counts value only when a sale is made, so producing for inventory adds cost but no throughput.