Throughput accounting

In this lesson

1. 0:00 Throughput accounting and theory of constraints
2. 0:46 Calculating throughput and throughput accounting ratio
3. 2:03 Throughput accounting ratio worked example
4. 6:33 Strategies to improve throughput ratio
5. 8:02 Multi-product ranking by throughput per hour
6. 11:52 Section B scenario: Bake Up Bakery
7. 14:30 Identifying bottleneck resources in production
8. 18:11 Optimal production plan with constraints
9. 24:27 Hiring additional capacity decision analysis

About this lesson

Throughput accounting treats all costs except direct materials as fixed, and focuses on maximising the throughput contribution (sales revenue minus material costs) per bottleneck hour. You'll master the throughput accounting ratio formula and understand how to rank products to optimise production decisions when resources are constrained. The lesson covers the fundamental concepts and calculations you need for your exam. You'll learn why throughput differs from traditional contribution margin accounting, how to calculate the throughput accounting ratio (return per factory hour divided by cost per factory hour), and why a ratio above one signals profitability. The video walks you through worked examples showing how to identify bottleneck resources, rank products by their throughput per bottleneck hour, and build optimal production plans that respect both minimum demand requirements and capacity constraints. Real-world scenarios demonstrate how to apply these principles when you face decisions like whether to hire additional capacity or which products to prioritise when you cannot meet all demand. By the end, you'll be confident using throughput accounting to solve complex production planning problems in your exam. You'll understand how to avoid common pitfalls—particularly remembering to exclude labour costs from the throughput calculation and to focus on the bottleneck resource when ranking products. This technique is essential for performance management papers and case study questions where you need to recommend profit-maximising production strategies under resource constraints.

Duration: 27m