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Lu Shan 0132303
Hu Jian 0132323
Shang Chen 0132342
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 Throughput
accounting (TA) is an
approach to production management
which aims to maximise sales revenue
less materials cost (Throughput), whilst
also reducing inventory and operational
expenses. TA is developed from the
theory of constraints(TOC).
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 The
theory of constraints (TOC) is an
approach to production management
which aims to maximise sales revenue
less material cost.
Its key financial concept is to turn
materials into sales as quickly as possible.
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A
production
resource(eg: machine
time, labour time)
A
selling resource
existence of an
uncompetitive selling
price
……
A
need to deliver on
time to particular
customers
A
lack of product
quality and reliability
 The
 The
lack of reliable
material suppliers
…..
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I.
II.
III.
IV.
V.
Identify the constraint(bottleneck
resource).
Decide how to exploit the constraint.
Subordinate and synchronise
everything else to the decisions made
in step 2.
Elevate the performance of the
constraint.
If the constraint has shifted during any
of the above steps, go back to step 1.
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Throughput accounting VS
Conventional cost accounting
Conventional
cost
accounting
Throughput
accounting
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2
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Inventory
is an asset
Costs are
classified
as direct
or indirect
Direct
labour
cost is a
variable
cost
It's not an
asset but
a barrier
to making
profit
Direct cost
and indirect
cost are no
longer exist
in TA
Labour
costs are
classified
as fixed
costs
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Deducting Profit can be
increased by
a product
cost lead to reducing cost
elements
product
profitability
Profitability is
determined
by the rate at
money and
throughput is
earned
Profit is a
function of
material cost,
Profit=
Throughput TFC
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 We
are aim at maximising the throughput
per unit of bottleneck resource.
 Giving
priority to those products that earn
the largest throughput per unit of bottleneck
resource.
 Ranking
products in order for production
and sales according to the throughput that
they earn per unit of bottleneck resource
they consume.
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Step 1: Determine the bottleneck resource
Step 2: Calculate the throughput per unit for
each product
Step 3: Calculate throughput per unit of
limiting factor
Step 4: Rank products
Step 5: Allocate resources to arrive at
optimum production plan
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Throughput return per factory hour:
Sales − D𝑖rect material costs
Usage of bottleneck resource in hours(Factory hours)
Example: p58
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Throughput accounting ratio:
𝑇ℎ𝑟𝑜𝑢𝑔ℎ𝑝𝑢𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑜𝑓 𝑏𝑜𝑡𝑡𝑙𝑒𝑛𝑒𝑐𝑘 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒
𝐹𝑎𝑐𝑡𝑜𝑟𝑦 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑜𝑓 𝑏𝑜𝑡𝑡𝑙𝑒𝑛𝑒𝑐𝑘 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒
Factory cost per unit of bottleneck resource:
𝑇𝑜𝑡𝑎𝑙 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑐𝑜𝑠𝑡𝑠
𝑇𝑜𝑡𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 𝑜𝑓 𝑏𝑜𝑡𝑡𝑙𝑒𝑛𝑒𝑐𝑘 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒
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(Exercise 2.2)Product Z is made in a production
process where machine time is a bottleneck resource.
One unit of product X requires 0.3 machine hours. The
costs and selling price of Product X are as follows:
$
Materials
8
Labour(0.4hours)
4
Other factory costs
2
14
Sales price
18
Profit
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In a system of throughput accounting,what is the
throughput accounting ratio for Product Z?
A.1.29
B.1.67 C.3.00
D.4.00
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Thank you for listening
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