throughput accounting

throughput accounting
An approach to short-term decision making in manufacturing in which all conversion costs are treated as though they were fixed and products are ranked if a particular constraint or scarce resource exists. Decisions are made using the throughput accounting ratio (TAR) as follows:
return per factory hour/cost per factory hour,
where return per factory hour =
(sales price – material cost)/hours on scarce resource;
and cost per factory hour =
total factory cost/total available hours of constraint.
More recently, throughput accounting has been applied in more general areas of management accounting

Accounting dictionary. 2014.

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