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ACCA Strategic Professional · Advanced Performance Management · Performance improvement models and techniques

Kestrel Ltd makes three products using a single machine that is the only bottleneck. Product X sells for $50 with material cost $20 and uses 2 machine hours. Product Y sells for $60 with material cost $30 and uses 1.5 machine hours. Product Z sells for $40 with material cost $10 and uses 3 machine hours. Which product should Kestrel give first priority when allocating bottleneck hours?

Product Y should have priority because it earns the highest throughput per bottleneck hour. Throughput is selling price less material cost, giving $30 for each product, but Y uses only 1.5 hours, so it earns $20 per hour, compared with $15 for X and $10 for Z.

  1. AProduct X, with a return of $15 per machine hour
  2. BProduct Y, with a return of $20 per machine hourCorrect
  3. CProduct Z, with a return of $10 per machine hour
  4. DProduct Z, because it has the highest throughput of $30 per unit

Explanation

Throughput per unit is price less material: X $30, Y $30, Z $30. Return per bottleneck hour: X 30/2 = $15, Y 30/1.5 = $20, Z 30/3 = $10. Y ranks first. Choosing Z because of unit throughput ignores the bottleneck usage.

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