Throughput Accounting Ratio ACCA PM | TPAR Guide
Throughput Accounting Ratio in ACCA PM: Formula, Calculation & Exam Guide
The throughput accounting ratio (TPAR) measures whether a product generates enough cash to cover operating costs per hour of bottleneck time used. It is calculated as throughput return per factory hour divided by cost per factory hour, and a TPAR greater than 1 signals profitability.
If you are preparing for the ACCA Performance Management (ACCA PM) exam, mastering the TPAR formula and interpretation is non-negotiable. Throughput accounting appears in Syllabus Area B and is tested regularly in both Section A MCQs and Section B constructed-response questions.
💡 Key Takeaway
- TPAR formula: Throughput per bottleneck hour ÷ Cost per bottleneck hour
- TPAR > 1 = product is profitable; TPAR < 1 = product is loss-making per bottleneck hour
- Only direct materials are treated as variable costs — labour and overheads are fixed
- The ACCA PM examiner has specifically flagged students for incorrectly including labour as a variable cost in throughput calculations
- Products should be ranked by throughput per bottleneck hour, not by throughput per unit
📑 Table of Contents
- What Is the Throughput Accounting Ratio (TPAR)?
- How Is TPAR Calculated? Step-by-Step Formula
- Worked Example: Calculating TPAR in an ACCA PM Question
- How Do You Interpret the Throughput Accounting Ratio?
- What Should You Do If TPAR Is Less Than 1?
- Throughput Accounting vs Marginal vs Absorption Costing
- How to Identify the Bottleneck Resource
- ACCA PM Examiner Insights: What Students Get Wrong
- Pro Tips for TPAR Questions in the ACCA PM Exam
- Frequently Asked Questions
What Is the Throughput Accounting Ratio (TPAR)?
The throughput accounting ratio (TPAR) is a performance metric that evaluates whether a product earns enough throughput per hour of bottleneck time to justify its share of total factory costs. A TPAR above 1 means the product is covering costs and contributing to profit. A TPAR below 1 means each bottleneck hour spent on that product is destroying value.
Throughput accounting is rooted in the Theory of Constraints (TOC), developed by physicist and business management thinker Eliyahu M. Goldratt in his 1984 business novel The Goal. Goldratt argued that traditional cost accounting distorts decision-making by spreading overhead costs across products. Instead, he proposed focusing on maximising cash generation through the system's tightest constraint — the bottleneck.
In the ACCA PM syllabus (Area B: Decision-Making Techniques), throughput accounting sits alongside other specialist costing methods. The key distinction is this: throughput accounting treats only direct materials as variable costs. Direct labour, variable overheads, and fixed overheads are all classified as fixed "operating expenses" in the short term.
According to ACCA's own examiner reports, throughput accounting is one of the four most-tested calculation topics in PM Section A questions. The March/June 2025 examiner report specifically identified throughput-related MCQs as among the hardest in that sitting.
How Is TPAR Calculated? Step-by-Step Formula
The TPAR calculation follows a clear three-step process. Each step builds on the previous one, and confusing the sequence is one of the most common errors in the ACCA PM exam. Here is the formula breakdown.
📐 TPAR Formula
Step 1: Throughput per unit = Selling price per unit − Direct material cost per unit
Step 2: Throughput per bottleneck hour = Throughput per unit ÷ Bottleneck time per unit
Step 3: Cost per bottleneck hour = Total factory costs (excluding direct materials) ÷ Total available bottleneck hours
TPAR = Throughput per bottleneck hour ÷ Cost per bottleneck hour
⚠️ Important:
Do not deduct labour or variable overheads when calculating throughput. Only direct material costs are subtracted from selling price. This is the single biggest error candidates make — and the ACCA examiner confirms it every sitting.
Notice that Step 3 uses total factory costs excluding direct materials. This includes direct labour, variable production overheads, and fixed production overheads — all bundled together. In throughput accounting, all of these are treated as fixed operating expenses because they cannot be avoided in the short term.
The cost per bottleneck hour is a single figure for the entire factory, not product-specific. It represents how much operating expense the business incurs for every hour the bottleneck resource is running.
Worked Example: Calculating TPAR in an ACCA PM Exam Question
A worked example is the fastest way to lock in the TPAR calculation method. Below is a typical ACCA PM-style scenario with two products competing for limited bottleneck hours.
📋 Scenario: Zeta Manufacturing Co
Zeta Co makes two products, Alpha and Beta, using a single bottleneck machine. Data for the period:
| Detail | Alpha | Beta |
|---|---|---|
| Selling price per unit | $80 | $120 |
| Direct material cost per unit | $30 | $60 |
| Bottleneck time per unit | 0.5 hours | 1.5 hours |
Total factory costs (excl. materials): $180,000 per period
Total bottleneck hours available: 10,000 hours per period
Step 1 — Throughput per unit:
- Alpha: $80 − $30 = $50
- Beta: $120 − $60 = $60
Step 2 — Throughput per bottleneck hour:
- Alpha: $50 ÷ 0.5 hours = $100 per hour
- Beta: $60 ÷ 1.5 hours = $40 per hour
Step 3 — Cost per bottleneck hour:
- $180,000 ÷ 10,000 hours = $18 per hour
TPAR calculation:
- Alpha: $100 ÷ $18 = 5.56
- Beta: $40 ÷ $18 = 2.22
✅ Pro Tip:
Notice that Beta has the higher throughput per unit ($60 vs $50), but Alpha has the higher throughput per bottleneck hour ($100 vs $40). This is exactly the trap the ACCA examiner sets. Always rank products by throughput per bottleneck hour, never per unit.
Both products have TPAR values above 1, so both are profitable. However, if bottleneck hours are scarce, Alpha should be given production priority because it generates $100 of throughput for every bottleneck hour, compared to Beta's $40.
How Do You Interpret the Throughput Accounting Ratio?
Interpreting the TPAR is straightforward once you understand what the ratio represents. It tells you whether every hour of bottleneck time spent on a product is earning more cash than it costs to run the factory for that hour. There are three possible outcomes.
| TPAR Value | Meaning | Management Action |
|---|---|---|
| TPAR > 1 | Throughput earned exceeds the operating cost per bottleneck hour. The product is profitable. | Continue production. Prioritise products with the highest TPAR when bottleneck capacity is limited. |
| TPAR = 1 | Throughput exactly covers operating costs. The product breaks even on the bottleneck resource. | Investigate whether improvements can push the ratio above 1. Not sustainable long-term. |
| TPAR < 1 | Throughput earned is less than the operating cost per bottleneck hour. Each hour spent on this product generates a loss. | Take corrective action immediately — increase price, reduce material costs, improve bottleneck efficiency, or discontinue. |
A TPAR of 2.5, for example, means the product generates 2.5 times more throughput than the factory cost for each bottleneck hour used. The higher the ratio, the more valuable that product is to the organisation.
"In any organisation using throughput accounting, a TPAR below 1 signals that each bottleneck hour used by that product is costing more than it earns — and changes must be made quickly." — ACCA Global Technical Article on Throughput Accounting
When an ACCA PM question presents multiple products, the examiner expects you to rank them by TPAR (or equivalently, by throughput per bottleneck hour) and allocate scarce bottleneck time to the highest-ranked product first. This is one of the core applications of the Theory of Constraints in practice.
What Should You Do If TPAR Is Less Than 1?
When a product's TPAR falls below 1, it means the organisation is losing money on every bottleneck hour allocated to that product. The ACCA PM examiner frequently tests whether students can suggest practical improvement strategies — not just identify the problem. Here is a structured action framework.
📋 5-Point Action Plan When TPAR < 1
- Increase the selling price — raises throughput per unit directly. Only viable if the market will bear the increase without significant demand loss.
- Reduce direct material costs — negotiate with suppliers, find substitute materials, or reduce waste. This is the only cost category that affects throughput.
- Reduce bottleneck time per unit — improve production processes, invest in faster equipment, or redesign the product to require less bottleneck time. This raises throughput per bottleneck hour.
- Reduce total factory operating costs — cut overhead expenses to lower the cost per bottleneck hour. This improves TPAR for all products simultaneously.
- Elevate the constraint — increase total bottleneck capacity by adding shifts, outsourcing bottleneck processes, or purchasing additional bottleneck equipment. This follows Step 4 of Goldratt's five focusing steps.
In the exam, you will earn more marks by explaining why each action works rather than simply listing them. For example, reducing bottleneck time per unit works because it allows more units to flow through the constraint in the same period, increasing total throughput without adding cost.
If none of these actions can push TPAR above 1, the product should be discontinued — unless there are strategic reasons to retain it, such as maintaining a full product range for customer retention. The ACCA PM examiner has noted that top-scoring candidates discuss both quantitative thresholds and qualitative considerations.
Throughput Accounting vs Marginal vs Absorption Costing
Throughput accounting is one of three costing methods tested in ACCA PM. Understanding how it differs from marginal costing and absorption costing is essential for both MCQ and constructed-response questions. The table below summarises the key differences at a glance.
| Feature | Absorption Costing | Marginal Costing | Throughput Accounting |
|---|---|---|---|
| Variable costs included in product cost | All production costs (materials, labour, variable & fixed overhead) | All variable production costs (materials, labour, variable overhead) | Direct materials only |
| Treatment of direct labour | Product cost (variable) | Product cost (variable) | Fixed operating expense |
| Treatment of fixed production overhead | Absorbed into product cost | Period cost (expensed in full) | Period cost (part of total factory cost) |
| Inventory valuation | Full production cost | Variable production cost | Direct materials cost only |
| Key decision metric | Profit per unit | Contribution per unit (or per limiting factor hour) | TPAR / Throughput per bottleneck hour |
| Best used when | External reporting, pricing decisions | Short-term decision-making, break-even analysis | Bottleneck-constrained environments |
| Theoretical basis | Matching principle | Cost-volume-profit relationships | Theory of Constraints (Goldratt) |
The fundamental difference between throughput accounting and marginal costing is that marginal costing treats direct labour as a variable cost, while throughput accounting treats it as fixed. According to the ACCA PM syllabus guide, students must be able to explain this distinction and state when each method is appropriate.
For the exam, remember this rule: when a question mentions a "bottleneck," "constraint," or "limiting factor that cannot be resolved in the short term," throughput accounting is almost certainly the intended approach. When the question asks about contribution analysis without a binding constraint, marginal costing applies. If you are looking for a deeper understanding of how different costing methods are tested, our ACCA PM technical articles and resources page collects the official examiner guidance.
How to Identify the Bottleneck Resource
Before you can calculate TPAR, you must first identify which resource is the bottleneck — the single constraint that limits the entire system's output. The bottleneck is found by comparing each resource's capacity against total demand. The resource where demand exceeds supply is the constraint.
📋 How to Find the Bottleneck (Exam Method)
- Calculate total hours required for each resource: multiply units demanded × time per unit at each production stage.
- Compare required hours to available hours for each resource.
- The resource where required hours exceed available hours is the bottleneck. If multiple resources are constrained, the one with the largest shortfall is the binding constraint.
In the March/June 2025 ACCA PM exam, the examiner reported that many candidates failed the throughput MCQ because they did not correctly identify the bottleneck stage. The question required students to calculate maximum output per stage and recognise that Stage 2 was the constraint — but many students either skipped the bottleneck identification step or assumed the bottleneck was the stage with the longest processing time per unit, which is not always correct.
Goldratt's Theory of Constraints outlines five focusing steps for managing bottlenecks, and the ACCA PM exam may test any of them:
- Identify the system's constraint
- Exploit the constraint — ensure zero idle time on the bottleneck
- Subordinate everything else to the constraint — non-bottleneck resources should match the bottleneck's pace
- Elevate the constraint — invest to increase bottleneck capacity
- Repeat — once the constraint is broken, a new one will emerge
Understanding these five steps helps you answer the discursive part of a throughput accounting question, where marks are available for explaining how a company should manage its constraint — not just calculating TPAR.
ACCA PM Examiner Insights: What Students Get Wrong
The ACCA PM examiner reports from 2025 sittings reveal consistent patterns of error in throughput accounting questions. Knowing these patterns gives you a direct advantage because you can avoid the traps that cost most candidates marks.
⚠️ Top 5 Examiner-Flagged Mistakes
- Including labour costs in throughput calculation. The examiner states this is the single most common error. Throughput = selling price minus direct materials ONLY. Labour is a fixed operating expense.
- Failing to identify the bottleneck correctly. Students assume the bottleneck is obvious. The MJ2025 report confirms that many students calculated TPAR using the wrong resource as the constraint.
- Ranking products by throughput per unit instead of per bottleneck hour. A product with $60 throughput per unit can be less valuable than one with $50 per unit if it uses more bottleneck time.
- Confusing throughput with contribution. Contribution deducts all variable costs. Throughput deducts only direct materials. The two figures are different and not interchangeable.
- Giving one-line explanations in discursive parts. The MJ2025 examiner criticised students who wrote "TPAR is greater than 1 so it is profitable" without explaining what that means in context — how much throughput is generated, what the ranking implies, and what action management should take.
According to ACCA's published pass rates, the Performance Management paper typically sees pass rates between 40% and 50%. The March 2025 sitting recorded a pass rate of approximately 45%. Throughput accounting questions contribute to that failure rate disproportionately because students underestimate the precision required in the calculation steps.
If you want to see the full list of recurring errors across all PM topics, our detailed guide on 10 fatal ACCA PM mistakes breaks down every examiner-flagged issue with actionable fixes.
Pro Tips for TPAR Questions in the ACCA PM Exam
Scoring full marks on throughput accounting questions requires more than knowing the formula. You need a systematic approach that covers calculations, interpretation, and recommendations. Here are exam-tested strategies drawn from top-scoring candidate techniques and examiner feedback.
✅ Pro Tip: Use a Tabular Layout
Set up your TPAR workings as a table with one column per product. Row 1: throughput per unit. Row 2: throughput per bottleneck hour. Row 3: cost per bottleneck hour (same for all products). Row 4: TPAR. This format is clean, easy to mark, and reduces calculation errors.
1. Always identify the bottleneck first. Before touching the TPAR formula, calculate total resource demand for each production stage and compare it to capacity. Write this step out clearly — the examiner awards marks for bottleneck identification even if your final TPAR figure is wrong.
2. Label every number. Write "$100 per bottleneck hour" not just "100." The examiner has noted that unlabelled figures make it impossible to award method marks when the final answer is incorrect.
3. State the decision rule explicitly. After calculating TPAR, write a sentence such as: "Product Alpha has a TPAR of 5.56, which is greater than 1. This confirms it is profitable per bottleneck hour and should be prioritised." This earns interpretation marks that many students miss.
4. Always rank products when there are two or more. Even if the question does not explicitly ask for a ranking, stating production priority demonstrates deeper understanding. Rank by throughput per bottleneck hour (highest first).
5. Link your recommendation to the scenario. A generic "TPAR is above 1 so it should be produced" earns fewer marks than "Given that Zeta Co's bottleneck machine has only 10,000 hours available, Alpha should be produced first because its TPAR of 5.56 generates significantly more value per constraint hour than Beta's 2.22."
For broader exam strategy across all PM topics, see our guide on how to pass ACCA PM exams, which covers time management, question selection, and technique for each section type.
"Throughput accounting questions in ACCA PM are among the most predictable in the entire syllabus. The formula never changes, the examiner tests the same errors every sitting, and students who practise three to four past questions will recognise the pattern instantly." — Vicky Sarin, CA, INSEAD Alumni, Founder of Eduyush
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Related ACCA PM Topics You Should Study Next
Throughput accounting does not exist in isolation. The ACCA PM examiner frequently combines throughput concepts with other syllabus areas. Build your understanding across these connected topics:
- ACCA PM transfer pricing questions — another area where candidates lose marks on calculation precision
- Big data analytics in ACCA PM — the newer syllabus topic tested from 2025 onwards
- Best ACCA books for exam preparation — BPP and Kaplan study text recommendations
- Which ACCA exams to take together — smart exam combinations to save time
We are also building out a complete cluster of ACCA PM topic guides. Coming soon:
- Activity-based budgeting in ACCA PM
- CVP analysis and break-even in ACCA PM
- Balanced scorecard perspectives in ACCA PM
Frequently Asked Questions
What is the throughput accounting ratio (TPAR) in ACCA PM?
The throughput accounting ratio (TPAR) is a profitability measure that compares the throughput generated per bottleneck hour against the total factory cost per bottleneck hour. A TPAR greater than 1 indicates the product is profitable. It is calculated as: throughput per bottleneck hour divided by cost per bottleneck hour.
What is the formula for calculating TPAR?
TPAR = Throughput per bottleneck hour ÷ Cost per bottleneck hour. Throughput per bottleneck hour is found by dividing throughput per unit (selling price minus direct materials only) by the bottleneck time required per unit. Cost per bottleneck hour equals total factory costs (excluding direct materials) divided by total available bottleneck hours.
What is the difference between throughput and contribution?
Throughput is calculated as selling price minus direct material cost only. Contribution is selling price minus all variable costs, including direct labour and variable overheads. In throughput accounting, labour is treated as a fixed cost because it cannot be avoided in the short term. This distinction is critical in ACCA PM and is one of the most common exam errors.
What does it mean if TPAR is less than 1?
A TPAR below 1 means the product is not generating enough throughput to cover its share of operating costs for each bottleneck hour used. Management should consider increasing the selling price, reducing material costs, improving bottleneck efficiency, cutting factory overheads, or discontinuing the product if no improvement is feasible.
How do you identify the bottleneck in a throughput accounting question?
Calculate the total hours required at each production stage by multiplying demand by the time per unit at each stage. Compare required hours to available hours. The stage where required hours exceed available capacity is the bottleneck. Always perform this step before calculating TPAR — the ACCA examiner awards marks for it.
Why is direct labour treated as a fixed cost in throughput accounting?
Throughput accounting assumes that in the short term, an organisation cannot hire or fire workers based on production volume. Wages are committed costs that continue regardless of output levels. Therefore, only direct materials — which vary directly with each unit produced — are treated as variable. This assumption is central to the Theory of Constraints developed by Eliyahu Goldratt.
Can throughput accounting be applied to service organisations?
Yes, throughput accounting principles can be applied wherever a bottleneck constrains output. In service organisations, the constraint might be specialist staff hours, machine capacity in data processing, or appointment slots. The TPAR calculation works the same way — identify the constraint, calculate throughput per constraint hour, and compare it to operating cost per constraint hour.
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