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ACCA Strategic Professional · Advanced Performance Management · Performance improvement models and techniques

Marlow Co has a throughput accounting ratio (TPAR) calculation for its main product. Throughput per factory hour is $45 and total factory cost per factory hour is $36. Which conclusion is correct?

The TPAR is 1.25, found by dividing throughput per factory hour of $45 by factory cost per factory hour of $36. Because it is greater than 1, the product generates more throughput than the cost of the resources it consumes, so it is worthwhile.

  1. ATPAR is 0.80, so the product earns less than its cost and should be reviewed for discontinuation immediately
  2. BTPAR is 1.25, so the product returns more throughput than the cost of the factory resources used, and it is worth producingCorrect
  3. CTPAR is 1.25, so the product is only worthwhile if inventory is built up to absorb overheads
  4. DTPAR is 9, so the product earns a profit of $9 per unit

Explanation

TPAR = return per factory hour / cost per factory hour = 45/36 = 1.25. A ratio above 1 means throughput exceeds the factory cost used, so the product adds to profit. 0.80 results from inverting the ratio.

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