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TPAR is a ratio that is used to see whether the contribution is greater than the fixed cost incurred to be profitable to produce that product?
If TPAR > 1 we should make that product because the product contribution exceeds product fixed costs
If TPAR < 1 we shouldn’t make that product because the product contribution is not enough to cover fixed cost incurred and product is loss making to be produced?
With throughput accounting the TPAR is the throughput return per hour divided by the factory cost per hour. (The throughput return is not the contribution).
We use the TPAR to rank the products so as to decide what to produce. If the TPAR is less than 1 then certainly we will look to see if we can find ways of getting it above 1, but it does not mean that we won’t produce it. The fixed costs will still be there (by definition) and any throughput return is better than getting no return at all.
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