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Throughput accounting

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Throughput accounting

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • February 19, 2017 at 9:06 am #373109
    nzrn89
    Participant
    • Topics: 37
    • Replies: 15
    • ☆☆

    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 mins

    The 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 hours

    The 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 42

    Selling 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 = $325

    Thus 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 #373163
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    Process 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?

  • Author
    Posts
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  • The topic ‘Throughput accounting’ is closed to new replies.

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