1. What is throughput accounting
? 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.