ABSTRACT

Throughput accounting is essentially the same as direct costing or variablecosting, as commonly defined in traditional managerial accounting text-books (also referred to as variable contribution). Many large manufacturing companies use some form of variable contribution analysis for internal reporting; however, all U.S. firms are required by the public accounting profession as well as federal regulatory and tax authorities to use full-absorption accounting, as defined under generally accepted accounting principles (GAAP), for all external financial reporting. There is often a misconception that the company needs to maintain two sets of books for throughput accounting and GAAP reporting to co-exist. This has contributed to the reluctance to adopt throughput accounting as the primary internal format when, in truth, there is clearly no need for two sets of books or even a complicated reconciliation process.