Throughput Accounting

It is just a different costing method

Throughput accounting simplifies decision-making by focusing on key factors and metrics, rather than getting bogged down in complex cost allocation.

So here goes:-

Throughput is SP – Material costs only…
(sales revenue or price minus direct material costs)
Why?

In throughput accounting, material costs are excluded from the total factory cost because they are treated as a variable cost directly linked to production, while other factory costs (like labour & overhead) are considered fixed in the short term.

This approach aims to maximise the throughput by focusing on the bottleneck and optimising its utilisation.

By isolating material costs, throughput accounting can better assess the profitability of each product based on its contribution to covering fixed costs and generating profit. 

The formulas:

In throughput accounting, we calculate the Return per Factory Hour and Cost per Factory Hour to identify bottlenecks and maximise profitability.

Return per Factory Hour helps determine which products or processes are most profitable, given the constraints of the bottleneck resource.
Cost per Factory Hour measures the cost of operating the bottleneck resource per hour, allowing for comparison with the throughput generated.

The Throughput Accounting Ratio is then used to assess how efficiently a company converts materials into sales revenue, particularly focusing on bottleneck resource.

Hope this helps

You are most welcome