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Throughput Accounting (Que)

The document discusses cost and management accounting with a focus on throughput accounting, detailing the operations of Yam Co and other companies. It includes calculations for throughput accounting ratios, identification of bottlenecks, and considerations for production decisions. Additionally, it presents various scenarios involving product costs, sales prices, and operating expenses to illustrate the application of throughput accounting principles.

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ndiyambamitchellen
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52 views2 pages

Throughput Accounting (Que)

The document discusses cost and management accounting with a focus on throughput accounting, detailing the operations of Yam Co and other companies. It includes calculations for throughput accounting ratios, identification of bottlenecks, and considerations for production decisions. Additionally, it presents various scenarios involving product costs, sales prices, and operating expenses to illustrate the application of throughput accounting principles.

Uploaded by

ndiyambamitchellen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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COST AND MANAGEMENT ACCOUNTING

THROUGHPUT ACCOUNTING

1. Yam Co is involved in the processing of sheet metal into products A, B and C using three
processes, pressing, stretching and rolling. Like many businesses Yam faces tough price
competition in what is a mature world market.
The factory has 50 production lines each of which contain the three processes: Raw material for
the sheet metal is first pressed then stretched and finally rolled. The processing capacity varies
for each process and the factory manager has provided the following data:

Processing time per metre in hours


Product A Product B Product C
Pressing 0·50 0·50 0·40
Stretching 0·25 0·40 0·25
Rolling 0·40 0·25 0·25

The factory operates for 18 hours each day for five days per week. It is closed for only two
weeks of the year for holidays when maintenance is carried out. On average one hour of labour is
needed for each of the 225,000 hours of factory time. Labour is paid $10 per hour.
The raw materials cost per metre is $3·00 for product A, $2·50 for product B and $1·80 for
product C. Other factory costs (excluding labour and raw materials) are $18,000,000 per year.
Selling prices per metre are $70 for product A, $60 for product B and $27 for product C.
Yam carries very little inventory.

Required

(a) Identify the bottleneck process and briefly explain why this process is described as a
‘bottleneck’. (3 marks)
(b) Calculate the throughput accounting ratio (TA) for each product assuming that the bottleneck
process is fully utilised. (8 marks)
(c) Assuming that the TA of product C is less than 1:
(i) Explain how Yam could improve the TA of product C. (4 marks)
(ii) Briefly discuss whether this supports the suggestion to cease the production of product C and
briefly outline three other factors that Yam should consider before a cessation decision is taken.
(5 marks)

2. H Limited recorded a profit of $120 000 in the accounting period just ended using marginal
costing. The contribution sales ratio was 75%. Material costs were 10% of sales value and there
were no other variable production overhead costs. Fixed costs in the period were $300 000.

Required

What is the value of throughput in the period? (4 marks)

HANDOUT 16 – THROUGHPUT ACCOUNTING (QUE) - MUNDENDERE G. (077 2 979 148) Page 1


3. Huron Ltd manufactures a product called the GL1. The GL1 requires five hours of machine
time. Machine time is a bottleneck resource, as there are only four machines which are available
eight hours a day, five days a week. Each GL1 sells for $210 and has direct material costs of $26
per unit, labour costs of $19 per unit and factory overhead costs of $15 per unit. These costs are
based on weekly production and sales of 150 units.

What is the throughput accounting ratio (to 2 decimal places)? (3 marks)

4. G Limited manufactures three products, A, B and C. Product details are as follows:

Product A Product B Product C


$ $ $
Sales price 2.80 1.60 2.40
Materials cost 1.20 0.60 1.20
Direct labour cost 1.00 0.80 0.80

Weekly sales demand 4,000 units 4,000 units 5,000 units


Machine hours per unit 0.5 hours 0.2 hours 0.3 hours

Machine time is a bottleneck resource and maximum capacity is 4,000 machine hours per week.
Operating costs including direct labour costs are $10,880 per week. Direct labour workers are not
paid overtime and work a standard 38 hour week.

Required

Determine the optimum production plan for G Limited and calculate the weekly profit that would
arise from the plan. (4 marks)

5. A business manufactures a single product that it sells for $10 per unit. The material cost for
each unit of product sold is $3. The total operating expenses are $50 000 each month. Labour
hours are limited to 20 000 hours each month. Each unit of product takes two hours to assemble.

Required

a) Calculate the throughput accounting ratio. (3 marks)

b) Suppose the following changes were made by the management of the business:
 The sales price was increased from $10 to $13.50
 The time taken to make each product fell from 2 hours to 1.75 hours
 The operating expenses fell from $50 000 to $45 000.

Calculate the new throughput accounting ratio and comment on the differences. (3 marks)

HANDOUT 16 – THROUGHPUT ACCOUNTING (QUE) - MUNDENDERE G. (077 2 979 148) Page 2

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