Throughput accounting

Throughput accounting treats only direct material as variable, defining throughput as sales revenue minus material cost. Products are ranked by throughput per bottleneck hour to maximise profit when one resource limits overall output.

ByHoang TruongUpdated June 30, 2026

FrameworkTheory of constraints

See it move

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Machine M is the binding constraint at 200 hours a week. Product X earns €40 throughput per unit and needs 0.50 bottleneck hours per unit, so €80 per hour. Product Y earns only €30 per unit but needs just 0.20 hours, giving €150 per hour — Y is scheduled first.

Where it fits

SubjectCost AccountingAdvancedTopicRelevant Costs & Decision-MakingAdvancedTopicStrategic & Lean Cost ManagementAdvanced

The formula

LaTeX

T = SP - DM

Variables

$S P$: Selling price per unit (€ per unit)
$D M$: Direct material cost per unit (€ per unit)

Only direct material is treated as variable; labour and overhead are fixed in the short run under throughput accounting

LaTeX

T/h = \frac{T}{h_{\text{BN}}}

Variables

$T$: Throughput per unit (selling price minus direct material cost) (€ per unit)
$h_{B} N$: Bottleneck hours consumed to produce one unit (hours per unit)

Products are ranked by throughput per bottleneck hour; the highest-ranking product is scheduled first to maximise profit

Check yourself

PracticeCORE

A product sells for €100 per unit. Direct material cost is €42 per unit. Allocated direct labour cost is €28 per unit. Under throughput accounting, what is the throughput per unit?

Select an answer to check your understanding.