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A manufacturing company decides which of three mutually exclusive products to make in
its factory on the basis of maximising the company’s throughput accounting ratio.
Current data for the three products is shown in the following table:
Product X Product Y Product Z
Selling price per unit $60 $40 $20
Direct material cost per unit $40 $10 $16
Machine hours per unit 10 20 2.5
Total factory costs (excluding direct materials) are $150,000. The company cannot make
enough of any of the products to satisfy external demand entirely as machine hours are
restricted.
What would be the effect of the following actions on the company’s throughput
accounting ratio (TPAR)?’ Place a tick in the appropriate boxes in the table below.
Would improve the company’s existing TPAR or Would NOT
improve the company’s
existing TPAR
Increase the selling price of product Z
by 10%
Increase the selling price of product Y
by 10%
Reduce the material cost of product Z
by 5%
Reduce the material cost of product Y
by 5%Pls i need help with this question, When i solved it, all of them will improve the return per machine hour and therefore improve the TPAR but the answer at the back of my Kaplan kit states that only increasing the selling price of Z will improve the TPAR.
Thanks for the help in advance.The products are mutually exclusive and therefore only one of them can be made.
At present the return per factor hour from X is the highest and therefore it is only X that will be made.
Of the four possible changes, the return per factory hour for X will still be the highest (and therefore it will still be only X that will be made) except in the case of increasing the selling price of Z. In that case it will be Z that gives the highest return per factor hour and so they will change to producing Z and the TPAR overall will end up being higher.
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