Throughput costing

Throughput costing treats only direct materials as an inventoriable product cost; all conversion costs — direct labour and manufacturing overhead — are expensed in the period incurred, producing the lowest inventory values of any.

ByHoang TruongUpdated July 3, 2026

FrameworkThroughput accounting

See it move

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Absorption costing carries €10 of materials, €6 of labour and €4 of overhead into inventory, a €20 unit value. Throughput costing inventories only the €10 of materials; labour and overhead are expensed the moment they are incurred, so producing unsold units cannot inflate reported profit.

Where it fits

TopicCost Terms & ClassificationAdvancedSubjectCost AccountingAdvancedTopicAbsorption & Variable CostingAdvanced

The formula

LaTeX

\text{Throughput} = \text{Revenue} - \text{Direct materials cost}

Variables

$R e v$: Revenue from units sold (€)
$D M$: Direct materials cost of units sold (the only inventoriable product cost under throughput costing) (€)

All conversion costs are expensed in the period incurred; only direct materials attach to unsold inventory, producing the lowest possible inventory values.

Check yourself

PracticeCORE

Under throughput costing, a batch of 2,000 units is completed. The batch consumed €30,000 in direct materials, €12,000 in direct labour and €18,000 in manufacturing overhead. How much of these costs is treated as an inventoriable product cost?

Select an answer to check your understanding.