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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 Y Product X 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.Which of the following actions would improve the company’s existing throughput accounting ratio?
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%DOUBT-Sir how do we find cost per limiting factor when they haven’t given the total units or total limiting factors?
The question does not require you to calculate the cost per factory hour – it is not needed.
The can only make one product and they will make the one with the highest throughput return (which will automatically be the one with the highest TPAR given that the cost per factory hours will be the same whichever product they make).
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