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Bottleneck Accounting

Ir. M. Geense

(Delft University of Technology)



A company usually has several stages involved in the production and selling of a product or service. For example:


In practice, bottlenecks will usually arise to constrain the amount of products the firm can deliver (Kaplan and Atkinson, pp. 62). A bottleneck is the capacity constraining stage governing the output of the entire process (Slack et al, 2010). If a firm wants to increase sales, it has to solve it's bottlenecks.

Traditional Variance Analysis


In a traditional variance analysis, managerial accountants analyse the differences between the sales target and actual sales. Typicaly differences between targeted sales and actual sales are analysed as below (see also Horngren and Foster, pp. 138-271).

This report indicates that the actual number of products (volume) sold was lower than the target number of products (negative volume variance) and the average sales price of products was lower than the target sales price (negative price variance). The negative volume variance and the negative price variance explain the difference between the sales target and actual sales.

This traditional variance analysis however does not point out which of the business activities were bottlenecks, which caused the negative volume variance. That is why a traditional variance analysis can't be used to solve bottlenecks in an organization.

Reporting Bottlenecks with Bottleneck Accounting

Thus, with traditional accounting techniques you just report that the actual number of products (volume) sold was lower than the target number of products (negative volume variance). With bottleneck accounting however you specify this negative volume variance by showing the bottleneck activities which caused this negative volume variance (Veltman, 2011).

An example of a bottleneck accounting report is shown below (taken from

This report indicates which activities are bottlenecks which caused a lower actual sales number: the casting activity and a decline in market demand. With bottleneck accounting you thus report bottlenecks inside the company (the casting activity) and bottlenecks outside the company (market demand).

This report also shows the magnitude of each bottleneck. The magnitude of the bottleneck is the part of targeted sales which is missed as a result of the existence of the bottleneck. In this case $ 1.114.000 was missed because of the casting bottleneck, $ 500.000 was missed because of the market demand bottleneck and another $ 180.000 was missed because of other bottlenecks.

The magnitude of the bottleneck indicates how urgent the bottleneck is. This case indicates that management should focus on the casting activity first (for instance by increasing the capacity of the casting activity). Secondly, management should focus on the market demand (improve the marketing for instance).

Thus, with bottleneck accounting you not only report which are the bottlenecks to solve, you also point out which bottlenecks are to be handled first. In that way bottleneck accounting will make your management more aware of the necessity to solve bottlenecks and of the correct order in which to eliminate them (Veltman et al, 2014).



- Horngren, C. T. and G. Foster, 'Cost Accounting, A Managerial Emphasis', Prentice-Hall, Inc. 1987
- Kaplan, R.S. and A.A. Atkinson,
Advanced Management Accounting, Prentice-Hall International Inc. 1989
- Slack, N., Chambers, S. & Johnston, R., ‘Operations Management’ (6th ed.) Essex: Pearson Education. 2010
- Veltman, M., 'Bottleneck accounting', Maandblad voor Accountancy en Bedrijfseconomie, pp 299-305, Juni 2011
- Veltman, M., R. Kooij, S. Marban, 'Sales Bottlenecks And Their Effect On Profit', Journal of Applied Business Research, Vol 30, No 6, November / December 2014

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