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ACCA Applied Skills · Performance Management · Throughput accounting

Dalton Co has a bottleneck machine. Throughput per machine hour is $20 for product S and $14 for product T. Management proposes to make more of T because it has higher demand. Which is the best advice under throughput accounting?

Product S should be made first because it earns $20 of throughput per bottleneck hour compared with $14 for T. Throughput accounting ranks products by return per unit of the constraining resource, not by demand level or labour cost.

  1. AMake T first, because demand is higher
  2. BMake S first, because it earns more throughput per bottleneck hourCorrect
  3. CMake both in proportion to demand
  4. DMake T first, because it has lower labour cost

Explanation

Under throughput accounting the bottleneck should be exploited by producing in order of throughput per bottleneck hour. S earns $20 against $14 for T, so S should be made first, up to demand. Demand and labour cost do not determine the ranking.

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