Throughput accounting tricks

Sometime throughput accounting can be a difficult topic due to the difficulties of finding correct information to calculate throughput per bottleneck hour or conversion cost per bottleneck hour for throughput accounting ratio (TPAR). TPAR = throughput per bottleneck hour/conversion cost per bottleneck hour.

You must make sure you divide the correct figure to arrive at the correct numbers. The key is to be careful. If you have calculated throughput per unit, then make sure you calculate a bottleneck hour per unit (sometime given), throughput per unit/bottleneck hour per unit = throughput per bottleneck hour. If you have calculated conversion cost per annum then make sure you calculate bottleneck hour per annum as conversion cost per annum/bottleneck hour per annum = conversion cost per bottleneck hour.

Another difficulty could be the identification of bottleneck hour (sometime bottleneck resource or bottleneck process). Bottleneck is always the one that is slowest, causing problems, least capability and least capacity.

In ranking the product for optimum product mix decision, we look throughput per bottleneck hour, the highest throughput per bottleneck hour product will be ranked first. This is similar in limiting factor analysis where we rank product starting from the highest contribution per limiting factor to the least.

Finally to improve the TPAR, there are four common ways:
1. Increase selling price
2. Reduce material cost
3. Reduce conversion cost
4. Speed up bottleneck process/increase bottleneck hour/increase bottleneck resource