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Hello John,
Throughput accounting is Sales – material cost by the bottleneck while Limiting factor analysis is Sales – Variable cost by the limited resource.
In MCQs, we may not be told which of these two techniques to use in our analysis when required to rank which product to make first.
As they are kind of similar, is there a pointer you suggest we look out for?
When I notice “bottleneck”, I assume they’re requiring throughput accounting and when I notice “limiting factor”, I assume Limiting Factor analysis. Is this a fail-safe way to identify them?
Why do you say that in the exam you will not be told which technique to use? Of course the exam questions will make it clear.
And yes they are similar – have you not watched my free lectures on them?
Yes, I have John and I’m happy with the logic.
But in the specimen exam for September 2016, question 8, I think it seemed rather unclear or is there an information I’m not looking at properly?
This question is not throughput accounting, but conventional limiting factor (or key factor) analysis.
There are two reasons for knowing this – one is that if it is throughput then you would always be told (because throughput make extra assumptions). Also, with throughput it is machine time that is the limiting factor always – not labour (and in this question it is labour)
I had the same issue on Q98 Kaplan’s Exam Kit, now everything is more clear.
Thank you guys!Hi John,
Sorry to jump in here. I couldn’t help but notice your comment on machine time always being the limiting factor in Throughput Accounting. In the ACCA mock pre-Dec exam i just did, there is a question below which is a B section. But this is suggesting that the bottleneck is not machine, but a surgeon. I’m having trouble trying to calculate the TPAR for Procedure A. Could you kindly explain how we arrive at this? The answer they have is $8.96.
Question: What is the throughput accounting ratio for Procedure A (to the nearest two decimal places)?
Please see below…
Scenario 3
This scenario relates to five questions
Balaji Co is a private hospital offering two types of surgical procedures: A and B. Each uses a pre-operative injection given by a nurse before the surgery. The Managing Director is keen to maximise profits and has heard of ‘throughput accounting’, which may help him do this. The following information is available:
1. All patients go through a five step process, irrespective of which procedure they are having:
–step 1: consultation with the advisor;
–step 2: pre-operative injection and care given by the nurse;
–step 3: anaesthetic given by anaesthetist;
–step 4: procedure performed in theatre by the surgeon;
–step 5: recovery with the recovery specialist.
2. The prices and variable costs of the procedures are as follows:
Procedure A
Procedure B
Price
$2,700.00
$4,250.00
Variable costs
$810.60
$1,120.60
3. $70 of the variable cost for each procedure includes the costs of sterilizing and maintaining the medical equipment and theatre after each procedure. The remaining variable cost is direct materials.
4. There are five members of staff employed by Thin Co. Each works a total of 1,880 hours each per annum. The total salaries are 298,000. The only other hospital costs (comparable to ‘factory costs’ in a traditional manufacturing environment) are general overheads, including the theatre rental costs, amounting to $250,000 per annum.
5. Maximum annual demand for A and B is 600 and 1,200 procedures respectively. Time spent by each of the five different staff members on each procedure is as follows:
Procedure A
hours per procedure
Procedure B
hours per procedure
Advisor
0.8
0.8
Nurse
1.0
1.0
Anesthetist
0.7
1.1
Surgeon
0.75
1.25
Recovery specialist
0.65
0.85
Part hours are shown as decimals e.g. 0·24 hours =14·4 minutes (0·24 x 60)
Surgeon’s hours has been correctly identified as the bottleneck.
P.S . Its the top metrics below the different types of staff that relate to Procedure A
Thanks you
This is the whole question that i’ve put up above with the whole scenario. I’ll copy & paste below. Thanks.
“What is the throughput accounting ratio for Procedure A (to the nearest two decimal places)?”
You cannot expect me to work through the question without an idea of what you are struggling with.
What you have calculated?
I don’t work every question for every student!Ok. Basically i’m stuck on trying to arrive at the TPAR for Procedure A.
Yes, i’ve been trying hard to use this forum as a last resort if i am really REALLY stuck. No problem. Thanks
FYI
It tells you quite clearly that the $70 of the variable cost for each procedure includes the costs of sterilizing and maintaining the medical equipment and theatre after each procedure. The remaining variable cost is direct materials.
Throughput is SR -MC (those that are direct mats)
soStep 1: find the direct material costs:
810.6 – 70 = 740.6
Step 2: Find throughput contribution per hour
(2,700 – 740.6) / 0.75 = 2612.53
Step 3: find other factory costs per hour
(298,000 + 250,000) / 1,880 = 291.49
Step 4: find the throughput accounting ratio:
2,162.53 / 291.49 = 8.96
Thanks for this. I eventually arrived at the same conclusion after looking at another thread. What i would ask is what does happen to the $70 as this is not factored in, in any of the costs, except it is excluded completely?
The $ 70 of the variable cost for each procedure includes the costs of sterilizing and maintaining the medical equipment and theatre after each procedure.
It states quite clearly after………therefore is not relevant to calculating TPAR of a procedure
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