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ACCA Applied Knowledge · Management Accounting · Alternative cost accounting principles

Which one of the following is how throughput is defined in throughput accounting?

Throughput is sales revenue minus direct material cost. Throughput accounting treats labour and overheads as fixed in the short run, so only totally variable costs, normally materials, are deducted from sales to measure the rate at which the business generates money.

  1. ASales revenue minus direct labour cost
  2. BSales revenue minus total variable cost
  3. CSales revenue minus direct material costCorrect
  4. DSales revenue minus total absorption cost

Explanation

In throughput accounting, throughput is sales revenue less totally variable costs, which are usually only direct materials (and sometimes bought-in components). Labour is treated as a fixed cost in the short term. Deducting labour or total variable cost, or full absorption cost, gives a different measure.

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