Throughput accounting

1. What is throughput accounting

Major assumptions

? The only totally variable cost is direct raw materials costs.

? Direct Labor cost is not wholly variable.

? Inventory level should ideally be zero.

? Productions are for sales. Profitability is determined by the rate at which sales are made

? Idle time at non-bottleneck are acceptable.

To avoid the build-up of work in progress, production must be limited to the capacity of the bottleneck resource but this capacity must be fully utilised.

The overall aim of TOC is to maximise throughput.