Ir. M. Geense
(Delft University of Technology)
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
Traditional Variance Analysis
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
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
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
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