Question 233 – Flopro Plc in Kaplan Exam Kit

@johnmoffat said:
I explain this very point in my free lectures on throughput accounting!!

The budgets must have been prepared before knowing about the limited time available (otherwise there would be no question to answer!!). Therefore they must have prepared the budgets, and absorbed the overheads, on the expectation of producing to meet the full demand.
The total fixed overheads will not change (by definition) even though they actually end up producing less.

Do watch the lectures. They are a complete free course and cover everything needed to be able to pass the exam well.

Ok but throughput accounting assumes that the only variable costs in the short run are direct material costs and the labour costs in the short run should be treated as fixed costs.In the above question why we did not deduct the cost of labour as a fixed cost for arriving at the net profit?

@johnmoffat said:
I assume that you are referring to part (b) of the actual exam question, in which case this part is not asking you to use throughput accounting. It is normal key factor analysis.

It is only in part (c) that you are asked to use the throughput accounting approach (and in part (c) you are not asked to calculate the profit).

(This is a very old question that was originally asked in what is now Paper APM. It would not be asked in this way these days.)

May be you are right and it looks like the question in the kaplan kit has been amended.
Actually there is no part C in the question in kaplan kit.
There is a part B which is further divided into three parts and all those three parts are about throughput accounting.The part B takes data from part A for the calculations required for the throughput accounting.In part b(1) we are asked calculating calculate the optimal producting mix according to the throughput accounting and arrive at the net profit.
So after calculating the throughput we have to take other fixed costs from the part A to arrive at the net profit.We have fixed production over head costs,variable over heads costs per unit and overall hrs per product unit for products A and B.My question is we deduced fixed production overheads,variable production overheads but why we did not treated the labour costs of products as a fixed cost to arrive at a net profit?

@johnmoffat said:
I know I am right because I have the original exam question in front of me 🙂

I cannot give you a proper answer without seeing how Kaplan have amended the question (and I do not have Kaplan books – only the BPP Revision Kit).

With throughput accounting, labour costs should be subtracted (as a fixed cost based on the budgeted figures) from the throughput contribution, as I explain in my lectures.

So that means the kaplan solution definitely made another mistake just like the one in question i posted here few days ago.Mistakes do happen in both BPP and Kaplan books and if we follow the conceptual approach of TA labour costs must be deducted.
Anyways thanks for the help.

@johnmoffat said:
I obviously cannot be certain that they have made a mistake here, although it sounds as though they have done. Have you looked on their website to see if there is an errata sheet?

A errata sheet for BPP does exist but a quick google search gave me nothing on kaplan errata sheet for ACCA study materials.Ok i am typing the whole question here,so there should be no uncertainty.
(a) Flopro plc makes and sells two products A and B, each of which passes through the same automated production operations. The following estimated information is available for period 1: (i) Product unit data: A B Direct material cost ($) 2 40 Variable production overhead cost ($) 28, 4 Overall hours per product unit (hours) 0.25 ,0.15 (ii) Production/sales of products A and B are 120,000 units and 45,000 units with selling prices per unit $60 and $70 respectively. (iii) Maximum demand for each product is 20% above the estimated sales levels. (iv) Total fixed production overhead cost is $1,470,000. This is absorbed at an average rate per hour based on the estimated production levels.
(b) One of the production operations has a maximum capacity of 3,075 hours which has been identified as a bottleneck which limits the overall production/sales of products A and B. The bottleneck hours required per product unit for products A and B are 0.02 and 0.015 respectively. Flopro plc has decided to determine the profit maximising mix of products A and B based on the Throughput Accounting principle of maximising the throughput return per production hour of the bottleneck resources. This may be measured as throughput return per production hour = (selling price – material cost)/bottleneck hours per unit.
QUESTION:Calculate the mix (units) of products A and B which will maximise net profit and the value of that net profit.