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- This topic has 1 reply, 2 voices, and was last updated 7 years ago by John Moffat.
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- February 19, 2017 at 9:06 am #373109
Hi sir, hope you can help clarify this for me
A company produces two products, S and T, which pass through two production processes, X and Y. The time taken to make each product in each process is:
Product S Product T
Process X 5 mins 7.5 mins
Process Y 18 mins 12 minsThe company operates a 15 hour day and the processes have an average downtime each day of:
Process X 1.5 hours
Process Y 1.0 hoursThe costs and revenue for each unit of each product are:
Product S Product T
$ $
Direct materials 20 20
Direct labour 18 14
Variable overhead 4 4
Fixed overhead 5 4
Total costs 48 42Selling price $95 $85
Sales demand restricts the output of S and T to 50 and 80 units a day respectively. Calculate the daily production plan that would maximize the throughput return.
_________________________The answer is processing 70 units of product T will give the larger throughput return per day
Product S Product T
Capacity of process X per day 13.5 hours x 60 / 5 mins 13.5 hours x 60 / 7.5 mins
(Production time = 162 units = 108 units
= 15 – 1.5 = 13.5 hours)
Capacity of process Y per day 14 hours x 60 / 18 mins 14 hours x 60 / 12 mins
(Production time = 46.67 = 70 units
= 15 -1 = 14 hours)Process Y limits the production of both products to figures that are less than sales demand.
18 mins = 0.3 hours and 12 mins = 0.2 hours
Throughput return per hour of Product S = ($95 – $20) / 0.3 hours = $250/hour
Throughput return per hour of Product T = ($85 – $20) / 0.2 hours = $325Thus processing 70 units of product T will give the larger throughput return per day
I dont understand why the answer is 70 units of T, how about product S? Thanks so much sir.
February 19, 2017 at 3:56 pm #373163Process Y is the bottleneck resource for both products (because in for both products it is Y that is limiting the number of units that can be produced).
Therefore we prefer the product given the higher throughput return in process Y, which his product T at $325 per hour.
There are only 14 hours per day available in process Y and so we would be best using all of the hours making T (with the biggest throughput per hour) and there will be no time left to make S.
Have you watched my free lectures on throughput accounting?
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