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Throughput Accounting

Throughput accounting is a business management system that focuses on maximizing sales revenue by identifying the factors that produce goal units. It is based on just-in-time principles and the theory of constraints. The key formulas calculate throughput per unit, total throughput, total profit per day, return per factory hour, and the throughput accounting ratio. An example is provided for a company with a daily production capacity of 5 hours and 300 units per hour. The calculations show the company's total profit per day is Rs. 2,880,000, return per factory hour is Rs. 300,000, and throughput accounting ratio is 12.5. Throughput accounting aims to maximize profit by helping management make production and sales decisions.

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Saqib Akhtar
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2K views12 pages

Throughput Accounting

Throughput accounting is a business management system that focuses on maximizing sales revenue by identifying the factors that produce goal units. It is based on just-in-time principles and the theory of constraints. The key formulas calculate throughput per unit, total throughput, total profit per day, return per factory hour, and the throughput accounting ratio. An example is provided for a company with a daily production capacity of 5 hours and 300 units per hour. The calculations show the company's total profit per day is Rs. 2,880,000, return per factory hour is Rs. 300,000, and throughput accounting ratio is 12.5. Throughput accounting aims to maximize profit by helping management make production and sales decisions.

Uploaded by

Saqib Akhtar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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TOPIC:

THROUGHPUT ACCOUNTING
CONTENTS:

 Definition of Throughput
 Formulas
 Advantages of Throughput
 Example
DEFINATION:
 TROUGHPUT ACCOUNTING IS:

 System to produce “goal units”


 Identifies factors for produce goal units
 Principal based accounting
 It is a business intelligence for maximizing sales
revenue.
 ( Just in time , theory of constraints, and bottle neck
resource)
ADVANTAGES:
1. Focusing sales efforts
2. Product/service availability/mix decisions
3. Make/buy decisions
4. More realistic reporting
5. Maximizing the profits
Formulas:
Per unit throughput =
Sales – material cost
 
Total throughput=
(Sales – material cost) x Expected
production

Total profit per day =


Total throughput – Conversion cost
Return per factory hour=
Per unit throughput x units prod. per
factory hour

 Throughput accounting ratio=


Return per factory hour
Conversion cost per factory hour
EXAMPLE:
 
XYZ LTD CO. Detail of which is as follows:

Limited capacity of process is 5 hours per day and 300


units per hour
Selling price of each component is Rs. 2000
Unit material cost is Rs. 1000
Daily total of factory cost is Rs. 120,000 (excluding
material)
Expected production is 3,000 units
 
Required:
 
Total profit per day
Return per factory hour
Through put accounting ratio
(i) Total profit per day = Total throughput –
Conversion cost
= (3000000– 120000)=2880,000 per day
w1(2000-1000)*3000=3000000

(ii) Return per factory hour =Per unit


throughput x units prod. per hour
= 1000 x 300 = 300,000
  (2000-1000)
(iii) Throughput accounting ratio
= Return per factory hour
Conversion cost per factory hour
 300,000
24000 w2(120000/5)

12.5
CONCLUSION:
Throughput is a product management system.
 Which aim to maximize profit.
Its helps management to make decisions.
Thank you

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