Comparison of managerial implications for utilization of variable costing and throughput accounting methods

Abstract

Variable costing (VC) and throughput accounting (TA) are methods frequently used for decisions affecting product mix. Both methods feature some similarities in data processing, but they are applied in different situations. The VC method is preferred in situations when product mix decisions are based on maximizing a product's contribution margin, while TA depends on maximum utilization of resource constraints. Both take a different approach to variable costs, which are assigned to individual products. While TA conceives of total variable cost in the meaning of absolute variable cost, VA accepts the maximum level of variable cost. The objective of the study presented herein is to analyze the differing approaches of the VA and TA methods to cost variability and any consequent managerial implications. Adhering to a different approach to variable costs could result in a variety of product mix decisions. Such distinctions between the methods are given, through the analysis of several examples, and the authors' final conclusions on making effective product mix decisions are deduced.