ACCA PM · Guided practice (Show me how)
Chapter 5: Throughput accounting
A single limiting factor: ranking, the production plan and make-or-buy
Pi plc manufactures 2 products, A and B. The cost cards are as follows:
| A $ | B $ | |
|---|---|---|
| Selling price | 25 | 28 |
| Materials | 8 | 20 |
| Labour | 5 | 2 |
| Other variable costs | 7 | 2 |
| Fixed costs | 3 | 2 |
| Total cost | 23 | 26 |
| Profit | 2 | 2 |
| Machine hours p.u. | 2 hrs | 1 hr |
| Maximum demand (units) | 20,000 | 10,000 |
The total hours available are 48,000. Calculate the optimum production plan and the maximum profit using conventional key factor analysis.
Part (c) - a separate company. The availability of Material B is limited to 8,000 kg.
| Product | X | Y | Z |
|---|---|---|---|
| Demand (units) | 2,000 | 2,500 | 4,000 |
| Variable cost to make ($ per unit) | 10 | 12 | 14 |
| Buy-in price ($ per unit) | 13 | 17 | 16 |
| Kg of B required per unit (included in variable cost) | 3 | 2 | 1 |
Which products should the company make and which should it buy?
(a) Rank on contribution per machine hour
Calculate Pi plc's contribution per unit and per machine hour for each product.
(b) The optimum plan and the maximum profit
Prepare Pi plc's optimum production plan and calculate its maximum contribution and profit.
(c) Make or buy with a scarce material
Calculate the saving per kg of Material B for the separate company's components and the quantities of Z to make and buy.
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