Question Tag: Throughput Accounting

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  • 20 Marks

PM – Nov 2024 – L2 – Q4 – Decision-Making Techniques

Determine optimal production mix for maximizing profit using marginal costing and throughput accounting principles.

PK Limited manufactures two models of heavy-duty cooking racks suitable for restaurant kitchens and other commercial environments. Both models utilize the same types of raw materials and machine hours. No inventories are held. The sales budget for next year is as follows:

Model Sales Units Selling Price (N)
A 300,000 1,000
B 140,000 1,400

The following additional information is provided:

  • Cost data:
Model Material Cost (N) Variable Production Conversion Costs (N)
A 400 100
B 500 300
  • Fixed production overheads attributable to the manufacture of both models total N40,500,000.
  • Production is completed in the machining department, where the production rate per hour is:
    • Model A: 12.5 units
    • Model B: 10 units
  • Machine hours are limited to 30,000 hours.

Required:

a. Using marginal costing principles, calculate the optimal mix (units) of each model that will maximize net profit, and indicate the value of the net profit. (5 Marks)

b. Calculate the throughput accounting ratio for each model and briefly discuss when a product is worth producing under throughput accounting principles. Assume that the variable overhead cost, amounting to N24 million for the chosen product mix in part (a), is fixed in the short term. (7 Marks)

c. Using throughput accounting principles, advise management on the quantities of each model to produce for maximizing profit and provide a projected net profit for PK Limited next year. (5 Marks)

d. Explain two ways in which the concept of ‘contribution’ in throughput accounting differs from its use in marginal costing. (3 Marks)

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  • 30 Marks

PM – May 2024 – L2 – SA – Q1 – Costing Systems and Techniques

Calculation of machine utilization rates, identification of bottlenecks, and application of throughput accounting.

Tani Kamac (TK) makes three products A, B, and C. All three products must be offered for sale each month to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labor. Five direct employees are paid ₦80 per hour for a guaranteed minimum of 160 hours each per month. All products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hours required for each product are as follows:

Product A (hrs/unit) Product B (hrs/unit) Product C (hrs/unit)
Machine 1 1.5 4.5 3.0
Machine 2 1.0 2.5 2.0

The capacity of machine type 1 is 600 hours per month, and machine type 2 is 500 hours per month.

Additional details:

Product A Product B Product C
Selling Price (₦) 910 1,740 1,400
Component Cost (₦) 220 190 160
Other Direct Material Cost (₦) 230 110 140
Direct Labor Cost at ₦80/hr 60 480 360
Overheads (₦) 240 620 520
Profit (₦) 160 340 220
Maximum Monthly Demand (units) 120 70 60

TK uses marginal costing and contribution analysis for decision-making, while profits are reported using absorption costing.

Required:
a. Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 Marks)
b. Using the current system of marginal and contribution analysis, calculate the profit-maximizing monthly output of the three products. (4 Marks)
c. Explain why throughput accounting might provide more relevant information in TK’s circumstances. (6 Marks)
d. Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 Marks)
e. Explain the throughput accounting approach to optimizing inventory and its valuation. Contrast this approach to the current system used by TK. (5 Marks)
f. Explain the importance of identifying scarce resources when preparing budgets and the use of linear programming to determine the optimum use of resources. (6 Marks)

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  • 30 Marks

PM – Nov 2016 – L2 – Q1 – Decision Making Techniques

Evaluate profit maximization, machine bottlenecks, and inventory valuation using marginal and throughput accounting approaches.

Hicenta Limited makes three products Soyi, Milco and Yoghurt. All the three
products must be offered for sale each month in order to provide a complete
market service. The products are fragile and their quality deteriorates rapidly
shortly after production.
The products are produced on two types of machine and worked on by a single
grade of direct labour. Fifty direct employees are paid N80 per hour for a
guaranteed minimum of 160 hours per month.
All the products are first pasteurised on a machine type A and then finished
and sealed on a machine type B.
The machine hour requirements for each of the products are as follows:

Machine Information:

Machine Type Product Hours per Unit
Machine A Soyi 1.5
Machine A Milco 4.5
Machine A Yoghurt 3.0
Machine B Soyi 1.0
Machine B Milco 2.5
Machine B Yoghurt 2.0

The capacity of the available machines type A and B are 6,000 hours and 5,000
hours per month respectively. Details of the selling prices, unit costs and
monthly demand for the three products are as follows:

Product Costs and Demand:

Product Selling Price (N per unit) Concentrate Cost (N per unit) Other Direct Material Cost (N per unit) Direct Labour Cost (N per unit) Overheads (N per unit) Profit (N per unit) Maximum Monthly Demand (units)
Soyi 910 220 230 60 240 160 1,200
Milco 1,740 190 110 480 620 340 700
Yoghurt 1,400 160 140 360 520 220 600

Although, Hicenta Limited uses marginal costing and contribution analysis as
the basis for its decision making activities, profits are reported in the monthly
management accounts using the absorption costing basis. Finished goods
inventories are valued in the monthly management accounts at full absorption
cost.
You are required to:

a. Calculate the monthly machine utilisation rate for each product and
explain which of the machines is the bottleneck/limiting factor.
(6 Marks)
b. Use current system of marginal costing and contribution analysis to
calculate the profit maximising monthly output of the three products.
(6 Marks)
c. Explain why throughput accounting might provide more relevant
information in Hicenta‟s circumstances. (6 Marks)
d. Use a throughput approach to calculate the throughput-maximising
monthly output of the three products. (6 Marks)
e. Explain the throughput accounting approach to optimizing the level of
inventory and its valuation. Contrast this approach to the current system
employed by Hicenta. (6 Marks)

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  • 20 Marks

PM – Nov 2020 – L2 – Q2 – Costing Systems and Techniques

Analyze the profit-maximizing output using marginal costing and throughput accounting for two products, and compare both methods.

Ideal Nigeria Limited manufactures two products, Light and Medium, on the same machines. Sales demand for the products exceeds the machine capacity of the company’s production department. The potential sales demand in each period is for 10,000 units of Light and 15,000 units of Medium. Sales prices cannot be increased due to competition from other producers in the market. The maximum machine capacity in the production department is 40,000 hours in each period.

The following cost and profitability estimates have been prepared:

Light Medium
Sales price N110 N135
Direct materials N50 N45
Direct labour and variable overhead N30 N55
Contribution per unit N30 N35
Machine hours per unit 1.5 hours 2 hours

Fixed costs in each period are N450,000.

Required:
a. Using marginal costing principles, calculate the profit-maximizing output in each period, and the amount of profit. (4 Marks)
b. Explain how throughput accounting differs from marginal costing in its approach to maximizing profit. (4 Marks)
c. Using throughput accounting, calculate the throughput accounting ratio for Light and Medium. (8 Marks)
d. Using throughput accounting principles, calculate the profit-maximizing output in each period, and the amount of profit. (4 Marks)

 

 

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  • 20 Marks

PM – Nov 2021 – L2 – Q3 – Costing Systems and Techniques

Calculate profit-maximizing output using both marginal and throughput accounting principles and compare the approaches for Kahkiri Limited.

The following cost and profitability estimates have been prepared:

Product X Y
Sales price 44 54
Direct materials 20 18
Direct Labour 6 11
Variable overhead 6 11
Contribution per unit 12 14
Attributable fixed cost N10,000 N10,000
Machine hours per unit 1.5 hours 2 hours

Fixed costs in each period are N100,000.

Required:
a. Using marginal costing approach, calculate the profit-maximising output for the period, and the associated profit for each product and the company. (4 Marks)
b. What are the advantages of throughput accounting over marginal costing method in profit-maximising decisions? (4 Marks)
c. Calculate the throughput accounting ratio for Product X and for Product Y. (8 Marks)
d. Using throughput accounting principles, calculate the profit-maximising output in each period, and calculate the amount of the profit. (4 Marks)

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  • 9 Marks

MA – Mar 2023 – L2 – Q2a – Standard costing and variance analysis

Prepare a production plan to maximize profit using throughput approach with given labor hours and demand.

The statement below relates to the costs and selling price of a unit of three products produced by a company:

Additional information provided:
Labour rate per hour for all the products is GH¢8
Demand for the year in units: A – 4,000; B – 2,500; C – 3,600
Available labour hours: 65,000
Required:
i) Prepare a production plan that will maximize profit using the throughput approach.
(9 marks)
ii) Calculate the Through Put Accounting Ratio for each product assuming that the conversion
cost is based on the annual demand.
(6 marks)

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  • 18 Marks

MA – Nov 2018 – L2 – Q3b – Relevant cost and revenue

Analysis of machine utilization, identification of bottlenecks, and comparison of marginal costing versus throughput accounting in a production setting.

KYC Ltd makes three products: Hand Chew (HC), Yogurt Swallow (YS), and Canned Lick (CL). All three products are sold as a package and so are offered for sale each month to be able to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labour. Five direct employees are paid GH¢8 per hour for a guaranteed minimum of 160 hours each per month. All of the products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hour requirements for each of the products are as follows:

Product Machine Type 1 (Hours/Unit) Machine Type 2 (Hours/Unit)
HC 1.5 1
YS 4.5 2.5
CL 3 2

The capacity of the available machines type 1 and 2 are 600 hours and 500 hours per month respectively. Details of the selling prices, unit costs, and monthly demand for the three products are as follows:

Product HC (GH¢/Unit) YS (GH¢/Unit) CL (GH¢/Unit)
Selling price 91 174 140
Component cost 22 19 16
Other direct material cost 23 11 14
Direct labour cost at GH¢8 per hour 6 48 36
Overheads 24 62 52
Profit 16 34 22

Maximum monthly demand (units):

  • HC: 120
  • YS: 70
  • CL: 60

Although KYC Ltd uses marginal costing and contribution analysis as the basis for its decision-making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods (inventories) are valued in the monthly management accounts at full absorption cost.

Required:

i) Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 marks)

ii) Using the current system of marginal costing and contribution analysis, calculate the profit-maximizing monthly output of the three products. (5 marks)

iii) Explain why throughput accounting might provide more relevant information in KYC’s circumstances. (4 marks)

iv) Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 marks)

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  • 3 Marks

MA – April 2022 – L2 – Q2b – Advanced variance analysis

Calculate and comment on the Throughput Accounting Ratios of three products for Drogo.

Drogo uses the Throughput Accounting technique for efficient allocation of scarce resources. In the second quarter of 2021, the throughput per bottleneck resource for its three products were given as follows:

  • Product A: GH¢4
  • Product B: GH¢6
  • Product C: GH¢9

The total factory cost was GH¢67,500, and the bottleneck resource was 15,000 machine hours.

Required:

Calculate and comment on the Throughput Accounting Ratios of the three products. (3 marks)

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  • 20 Marks

PM – Nov 2024 – L2 – Q4 – Decision-Making Techniques

Determine optimal production mix for maximizing profit using marginal costing and throughput accounting principles.

PK Limited manufactures two models of heavy-duty cooking racks suitable for restaurant kitchens and other commercial environments. Both models utilize the same types of raw materials and machine hours. No inventories are held. The sales budget for next year is as follows:

Model Sales Units Selling Price (N)
A 300,000 1,000
B 140,000 1,400

The following additional information is provided:

  • Cost data:
Model Material Cost (N) Variable Production Conversion Costs (N)
A 400 100
B 500 300
  • Fixed production overheads attributable to the manufacture of both models total N40,500,000.
  • Production is completed in the machining department, where the production rate per hour is:
    • Model A: 12.5 units
    • Model B: 10 units
  • Machine hours are limited to 30,000 hours.

Required:

a. Using marginal costing principles, calculate the optimal mix (units) of each model that will maximize net profit, and indicate the value of the net profit. (5 Marks)

b. Calculate the throughput accounting ratio for each model and briefly discuss when a product is worth producing under throughput accounting principles. Assume that the variable overhead cost, amounting to N24 million for the chosen product mix in part (a), is fixed in the short term. (7 Marks)

c. Using throughput accounting principles, advise management on the quantities of each model to produce for maximizing profit and provide a projected net profit for PK Limited next year. (5 Marks)

d. Explain two ways in which the concept of ‘contribution’ in throughput accounting differs from its use in marginal costing. (3 Marks)

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  • 30 Marks

PM – May 2024 – L2 – SA – Q1 – Costing Systems and Techniques

Calculation of machine utilization rates, identification of bottlenecks, and application of throughput accounting.

Tani Kamac (TK) makes three products A, B, and C. All three products must be offered for sale each month to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labor. Five direct employees are paid ₦80 per hour for a guaranteed minimum of 160 hours each per month. All products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hours required for each product are as follows:

Product A (hrs/unit) Product B (hrs/unit) Product C (hrs/unit)
Machine 1 1.5 4.5 3.0
Machine 2 1.0 2.5 2.0

The capacity of machine type 1 is 600 hours per month, and machine type 2 is 500 hours per month.

Additional details:

Product A Product B Product C
Selling Price (₦) 910 1,740 1,400
Component Cost (₦) 220 190 160
Other Direct Material Cost (₦) 230 110 140
Direct Labor Cost at ₦80/hr 60 480 360
Overheads (₦) 240 620 520
Profit (₦) 160 340 220
Maximum Monthly Demand (units) 120 70 60

TK uses marginal costing and contribution analysis for decision-making, while profits are reported using absorption costing.

Required:
a. Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 Marks)
b. Using the current system of marginal and contribution analysis, calculate the profit-maximizing monthly output of the three products. (4 Marks)
c. Explain why throughput accounting might provide more relevant information in TK’s circumstances. (6 Marks)
d. Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 Marks)
e. Explain the throughput accounting approach to optimizing inventory and its valuation. Contrast this approach to the current system used by TK. (5 Marks)
f. Explain the importance of identifying scarce resources when preparing budgets and the use of linear programming to determine the optimum use of resources. (6 Marks)

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  • 30 Marks

PM – Nov 2016 – L2 – Q1 – Decision Making Techniques

Evaluate profit maximization, machine bottlenecks, and inventory valuation using marginal and throughput accounting approaches.

Hicenta Limited makes three products Soyi, Milco and Yoghurt. All the three
products must be offered for sale each month in order to provide a complete
market service. The products are fragile and their quality deteriorates rapidly
shortly after production.
The products are produced on two types of machine and worked on by a single
grade of direct labour. Fifty direct employees are paid N80 per hour for a
guaranteed minimum of 160 hours per month.
All the products are first pasteurised on a machine type A and then finished
and sealed on a machine type B.
The machine hour requirements for each of the products are as follows:

Machine Information:

Machine Type Product Hours per Unit
Machine A Soyi 1.5
Machine A Milco 4.5
Machine A Yoghurt 3.0
Machine B Soyi 1.0
Machine B Milco 2.5
Machine B Yoghurt 2.0

The capacity of the available machines type A and B are 6,000 hours and 5,000
hours per month respectively. Details of the selling prices, unit costs and
monthly demand for the three products are as follows:

Product Costs and Demand:

Product Selling Price (N per unit) Concentrate Cost (N per unit) Other Direct Material Cost (N per unit) Direct Labour Cost (N per unit) Overheads (N per unit) Profit (N per unit) Maximum Monthly Demand (units)
Soyi 910 220 230 60 240 160 1,200
Milco 1,740 190 110 480 620 340 700
Yoghurt 1,400 160 140 360 520 220 600

Although, Hicenta Limited uses marginal costing and contribution analysis as
the basis for its decision making activities, profits are reported in the monthly
management accounts using the absorption costing basis. Finished goods
inventories are valued in the monthly management accounts at full absorption
cost.
You are required to:

a. Calculate the monthly machine utilisation rate for each product and
explain which of the machines is the bottleneck/limiting factor.
(6 Marks)
b. Use current system of marginal costing and contribution analysis to
calculate the profit maximising monthly output of the three products.
(6 Marks)
c. Explain why throughput accounting might provide more relevant
information in Hicenta‟s circumstances. (6 Marks)
d. Use a throughput approach to calculate the throughput-maximising
monthly output of the three products. (6 Marks)
e. Explain the throughput accounting approach to optimizing the level of
inventory and its valuation. Contrast this approach to the current system
employed by Hicenta. (6 Marks)

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  • 20 Marks

PM – Nov 2020 – L2 – Q2 – Costing Systems and Techniques

Analyze the profit-maximizing output using marginal costing and throughput accounting for two products, and compare both methods.

Ideal Nigeria Limited manufactures two products, Light and Medium, on the same machines. Sales demand for the products exceeds the machine capacity of the company’s production department. The potential sales demand in each period is for 10,000 units of Light and 15,000 units of Medium. Sales prices cannot be increased due to competition from other producers in the market. The maximum machine capacity in the production department is 40,000 hours in each period.

The following cost and profitability estimates have been prepared:

Light Medium
Sales price N110 N135
Direct materials N50 N45
Direct labour and variable overhead N30 N55
Contribution per unit N30 N35
Machine hours per unit 1.5 hours 2 hours

Fixed costs in each period are N450,000.

Required:
a. Using marginal costing principles, calculate the profit-maximizing output in each period, and the amount of profit. (4 Marks)
b. Explain how throughput accounting differs from marginal costing in its approach to maximizing profit. (4 Marks)
c. Using throughput accounting, calculate the throughput accounting ratio for Light and Medium. (8 Marks)
d. Using throughput accounting principles, calculate the profit-maximizing output in each period, and the amount of profit. (4 Marks)

 

 

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  • 20 Marks

PM – Nov 2021 – L2 – Q3 – Costing Systems and Techniques

Calculate profit-maximizing output using both marginal and throughput accounting principles and compare the approaches for Kahkiri Limited.

The following cost and profitability estimates have been prepared:

Product X Y
Sales price 44 54
Direct materials 20 18
Direct Labour 6 11
Variable overhead 6 11
Contribution per unit 12 14
Attributable fixed cost N10,000 N10,000
Machine hours per unit 1.5 hours 2 hours

Fixed costs in each period are N100,000.

Required:
a. Using marginal costing approach, calculate the profit-maximising output for the period, and the associated profit for each product and the company. (4 Marks)
b. What are the advantages of throughput accounting over marginal costing method in profit-maximising decisions? (4 Marks)
c. Calculate the throughput accounting ratio for Product X and for Product Y. (8 Marks)
d. Using throughput accounting principles, calculate the profit-maximising output in each period, and calculate the amount of the profit. (4 Marks)

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  • 9 Marks

MA – Mar 2023 – L2 – Q2a – Standard costing and variance analysis

Prepare a production plan to maximize profit using throughput approach with given labor hours and demand.

The statement below relates to the costs and selling price of a unit of three products produced by a company:

Additional information provided:
Labour rate per hour for all the products is GH¢8
Demand for the year in units: A – 4,000; B – 2,500; C – 3,600
Available labour hours: 65,000
Required:
i) Prepare a production plan that will maximize profit using the throughput approach.
(9 marks)
ii) Calculate the Through Put Accounting Ratio for each product assuming that the conversion
cost is based on the annual demand.
(6 marks)

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  • 18 Marks

MA – Nov 2018 – L2 – Q3b – Relevant cost and revenue

Analysis of machine utilization, identification of bottlenecks, and comparison of marginal costing versus throughput accounting in a production setting.

KYC Ltd makes three products: Hand Chew (HC), Yogurt Swallow (YS), and Canned Lick (CL). All three products are sold as a package and so are offered for sale each month to be able to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labour. Five direct employees are paid GH¢8 per hour for a guaranteed minimum of 160 hours each per month. All of the products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hour requirements for each of the products are as follows:

Product Machine Type 1 (Hours/Unit) Machine Type 2 (Hours/Unit)
HC 1.5 1
YS 4.5 2.5
CL 3 2

The capacity of the available machines type 1 and 2 are 600 hours and 500 hours per month respectively. Details of the selling prices, unit costs, and monthly demand for the three products are as follows:

Product HC (GH¢/Unit) YS (GH¢/Unit) CL (GH¢/Unit)
Selling price 91 174 140
Component cost 22 19 16
Other direct material cost 23 11 14
Direct labour cost at GH¢8 per hour 6 48 36
Overheads 24 62 52
Profit 16 34 22

Maximum monthly demand (units):

  • HC: 120
  • YS: 70
  • CL: 60

Although KYC Ltd uses marginal costing and contribution analysis as the basis for its decision-making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods (inventories) are valued in the monthly management accounts at full absorption cost.

Required:

i) Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 marks)

ii) Using the current system of marginal costing and contribution analysis, calculate the profit-maximizing monthly output of the three products. (5 marks)

iii) Explain why throughput accounting might provide more relevant information in KYC’s circumstances. (4 marks)

iv) Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 marks)

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  • 3 Marks

MA – April 2022 – L2 – Q2b – Advanced variance analysis

Calculate and comment on the Throughput Accounting Ratios of three products for Drogo.

Drogo uses the Throughput Accounting technique for efficient allocation of scarce resources. In the second quarter of 2021, the throughput per bottleneck resource for its three products were given as follows:

  • Product A: GH¢4
  • Product B: GH¢6
  • Product C: GH¢9

The total factory cost was GH¢67,500, and the bottleneck resource was 15,000 machine hours.

Required:

Calculate and comment on the Throughput Accounting Ratios of the three products. (3 marks)

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