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Performance Management · Throughput accounting

Throughput Accounting Ratio (TPAR) Formula and Calculation

Updated 11 October 2026 · Fact-checked

The throughput accounting ratio (TPAR) is return per factory hour divided by cost per factory hour. Return per factory hour is (sales price − material cost) ÷ time on the bottleneck. Cost per factory hour is total factory cost ÷ total bottleneck hours. A TPAR above 1 means the product is profitable.

Understand Throughput Accounting Ratio (TPAR)

Throughput accounting treats most costs as fixed in the short run. It focuses on one thing: how fast the business turns materials into sales. This speed is called throughput.

Throughput = sales revenue − totally variable costs. In most exam questions the only totally variable cost is direct material. Labour is usually treated as a fixed cost, because you pay staff whether or not they are busy.

Every business has a bottleneck resource. This is the scarce resource that limits output, such as a machine. So we measure each product against the time it uses on that bottleneck. Time on the bottleneck is the key to everything in this topic.

The return per factory hour tells you how much throughput a product earns for each hour on the bottleneck. The cost per factory hour tells you what each bottleneck hour costs the business. Total factory cost (labour plus overheads, excluding materials) is divided by the hours the bottleneck is available.

The TPAR compares the two. Return ÷ cost. If it is above 1, the product earns more per bottleneck hour than that hour costs, so it adds to profit. If it is below 1, it does not cover its share of costs. A higher TPAR means a higher ranking, so make that product first.

Key rules to remember

Throughput (return) per unit
Throughput per unit = selling price − direct material cost (and any other totally variable cost)
Do not deduct labour or overheads unless the question says they vary with output.
Return per factory hour
Return per factory hour = throughput per unit ÷ hours of bottleneck time per unit
Use the bottleneck time only, not total time through the factory.
Total factory cost
Total factory cost = labour + overheads (all conversion costs, excluding direct materials)
Include all operating costs other than materials. Check the question for what to include.
Cost per factory hour
Cost per factory hour = total factory cost ÷ total bottleneck hours available
Same figure for every product, because it depends on the factory, not the product.
Throughput accounting ratio
TPAR = return per factory hour ÷ cost per factory hour
TPAR > 1: product adds to profit. TPAR < 1: product loses money on a throughput basis. TPAR = 1: break-even.

How to solve Throughput Accounting Ratio (TPAR) questions

Use this order for any TPAR question. It keeps your working clear and earns method marks in written parts.

  1. 1Identify the bottleneck resource and the hours each product uses on it.
  2. 2Calculate throughput per unit: selling price minus direct material (and any other totally variable cost).
  3. 3Calculate return per factory hour: throughput per unit ÷ bottleneck hours per unit.
  4. 4Calculate total factory cost: labour plus overheads, excluding materials. Divide by total bottleneck hours available to get cost per factory hour.
  5. 5Calculate TPAR for each product: return per factory hour ÷ cost per factory hour.
  6. 6Rank products from highest TPAR to lowest. Make the highest first, within demand limits and bottleneck capacity.
  7. 7Comment: TPAR above 1 is profitable, below 1 is not. Say what you would do, such as raise price, cut material cost or reduce bottleneck time.

Quickest way: Table method for TPAR

When to use it: Use this in Section A and Section B objective questions, where you need one number fast.

  1. Work out the cost per factory hour first. It is the same for every product, so do it once.
  2. For each product, compute throughput per unit in one line: price − materials.
  3. Divide by bottleneck hours to get return per hour.
  4. Divide the return per hour by the cost per hour. Stop there for the TPAR.
  5. If asked only for ranking, you can skip the TPAR and rank on return per factory hour. The ranking is the same, because the cost per hour is common to all products.
  6. Check the answer is sensible: a high-margin, low-bottleneck-time product should have a high TPAR.

Common mistakes in Throughput Accounting Ratio (TPAR)

  • Deducting labour and overheads when calculating throughput.

    Students are used to contribution, which deducts variable labour.

    Fix: In throughput accounting, deduct only totally variable costs, normally materials. Labour goes into factory cost.

  • Using total product time instead of bottleneck time per unit.

    The question lists times for several processes and the student picks the wrong one.

    Fix: Identify the bottleneck first. Use only that resource's hours in the return per factory hour.

  • Including direct materials in total factory cost.

    Students treat 'total cost' as every cost.

    Fix: Factory cost is labour plus overheads. Materials are already taken off in throughput, so counting them again double counts.

  • Calculating cost per factory hour for each product separately.

    Students copy the product-by-product layout used in absorption costing.

    Fix: There is one cost per factory hour for the whole factory. Divide total factory cost by total bottleneck hours.

  • Dividing cost by return, giving the TPAR upside down.

    The ratio order is not memorised.

    Fix: Return on top, cost below. A profitable product must give a figure above 1. Use that as a sense check.

  • Concluding that every product with TPAR above 1 should be made in full.

    Students ignore the limit on bottleneck hours and the demand limit.

    Fix: TPAR above 1 means profitable, not unlimited. Rank by TPAR and allocate scarce hours in order, within demand.

Worked examples

Example 1

A factory makes products X and Y. The bottleneck is a machine with 4,000 hours available per period. Factory costs (labour and overheads) are ₹6,00,000 per period. X sells for ₹500, materials cost ₹200, and it uses 2 machine hours. Y sells for ₹400, materials cost ₹100, and it uses 3 machine hours. Calculate the return per factory hour, cost per factory hour and TPAR for each product, and rank them.

Show the solution
  1. Cost per factory hour = ₹6,00,000 ÷ 4,000 = ₹150.
  2. X throughput per unit = ₹500 − ₹200 = ₹300.
  3. X return per factory hour = ₹300 ÷ 2 = ₹150.
  4. X TPAR = ₹150 ÷ ₹150 = 1.0.
  5. Y throughput per unit = ₹400 − ₹100 = ₹300.
  6. Y return per factory hour = ₹300 ÷ 3 = ₹100.
  7. Y TPAR = ₹100 ÷ ₹150 = 0.67 (rounded).
  8. Ranking: X first (TPAR 1.0), Y second (TPAR 0.67).

Answer: Cost per factory hour ₹150. X: return ₹150, TPAR 1.0 (break-even). Y: return ₹100, TPAR 0.67 (loss-making on a throughput basis). Rank X above Y.

Example 2

A company makes product P. Selling price is $60 per unit and direct material is $24 per unit. Each unit needs 0.5 hours on the bottleneck machine. Total factory cost is $90,000 for 3,000 bottleneck hours. (a) Calculate the TPAR. (b) The company wants a TPAR of 1.5. What is the minimum selling price needed, if material cost and time stay the same?

Show the solution
  1. (a) Throughput per unit = $60 − $24 = $36.
  2. Return per factory hour = $36 ÷ 0.5 = $72.
  3. Cost per factory hour = $90,000 ÷ 3,000 = $30.
  4. TPAR = $72 ÷ $30 = 2.4.
  5. (b) Target TPAR 1.5 means return per hour = 1.5 × $30 = $45.
  6. Required throughput per unit = $45 × 0.5 = $22.50.
  7. Required selling price = $22.50 + $24 = $46.50.

Answer: (a) TPAR is 2.4, so P is profitable. (b) The minimum selling price to achieve a TPAR of 1.5 is $46.50 per unit.

Exam tips

  • Write down the bottleneck and its hours before you calculate anything. Most lost marks come from using the wrong time.
  • In Section A, if you only need a ranking, compare return per factory hour. It saves time and gives the same order.
  • In Section C, show each of the three figures separately: return per hour, cost per hour, TPAR. Method marks depend on it.
  • Always add a one-line conclusion: above 1 profitable, below 1 not. Then suggest an action, such as raising the price or reducing bottleneck time.
  • Read the question for what counts as factory cost. If it says labour is variable or gives other variable costs, follow it.

Practice questions from Throughput accounting

Throughput Accounting Ratio (TPAR) 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 Ratio (TPAR): frequently asked questions

What is the formula for the throughput accounting ratio?

TPAR = return per factory hour ÷ cost per factory hour. Return per factory hour is (selling price − direct material) ÷ bottleneck hours per unit. Cost per factory hour is total factory cost ÷ total bottleneck hours.

What does a TPAR greater than 1 mean?

It means the product earns more throughput per bottleneck hour than that hour costs. The product adds to profit. A TPAR below 1 means it does not cover its costs, and a TPAR of exactly 1 is break-even.

Is TPAR the same for every product?

No. The cost per factory hour is the same for all products, but the return per factory hour differs. Products with high throughput and low bottleneck time have the highest TPAR.

How do I use TPAR to rank products?

Calculate the TPAR for each product and rank from highest to lowest. Produce the highest-ranked product first, up to its demand limit. Then use the remaining bottleneck hours on the next product.