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Advanced Costing Methods

6.4 The Throughput Accounting ratio

Throughput per unit
Throughput (return) per factory hour = '
Product s time on the bottleneck resource

Cost per factory hour = Total factory cost
Total bottleneck resource time available

Throughput Accounting ratio (TPAR) = Return per factory hour
Cost per factory hour

 TPAR>1 would suggest that throughput exceeds operating costs so the product
should make a profit. Priority should be given to the products generating the
best ratios.

 TPAR<1 would suggest that throughput is insufficient to cover operating costs,
resulting in a loss.

Illustrations and further practice

Now try TYU 2, ‘X Limited’.

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