What is the focus of throughput accounting?

Throughput accounting centers on the concept of maximizing the speed of production while considering the contribution margin per unit of a constrained resource. This approach emphasizes the importance of identifying bottlenecks or constraints within the production process and managing them effectively to increase the overall throughput of the business.

The methodology prioritizes the flow of goods through the system, aiming to optimize production processes so that they deliver the most profitable output in relation to the limited resources available. By focusing on the contribution margin—essentially the profit generated from sales minus the variable costs—the aim is to ensure that each constrained resource is utilized in a manner that maximizes its contribution to overall profitability.

This perspective is particularly important in environments where resources are limited or when there are specific constraints that management must address to improve operational efficiency. Throughput accounting is distinct from traditional cost accounting, which may focus more on reducing production costs overall rather than optimizing the use of constrained resources for maximum financial benefit.