Throughput Accounting Assumption

Throughput Accounting Assumption

1.    Labour is not Variable cost

Throughput says that labour is normally paid weekly and monthly and therefore it is not appropriate to categories them with level of activity (production), rather it is a fixed cost.

2.    Direct Material only variable cost

Throughput says that direct martial is only the variable production cost. This cost is treated as investment in business.

3.    Inventory is Investment

Inventory is treated as investment till it is sold. It is believed that funds have been invested in inventory and would be realized on its sale.

4.    All Expenditure are Operating (other than material)

All production expenditure is treated as operating expenditure including labour expenditure.

5.    Inventory Valuation

Only purchase cost of material is investment, no other cost is added to the value of material till it is sold (other cost are added at time of sale).