CMA Final · Strategic Cost Management · Throughput Accounting
Menon Plastics has a bottleneck that works 1,000 hours per month, producing 500 units of a product with throughput of ₹800 per unit. Management can buy 100 extra bottleneck hours from an outside contractor at ₹300 per hour extra cost, with no other costs. Each bottleneck hour yields 0.5 unit. What is the effect on monthly profit of buying the extra hours?
Profit rises by ₹10,000. The extra 100 bottleneck hours yield 50 more units, adding ₹40,000 throughput at ₹800 each, while the contractor costs ₹30,000. Since throughput gained exceeds the added cost, buying the hours is worthwhile.
- AIncrease of ₹10,000Correct
- BDecrease of ₹10,000
- CIncrease of ₹40,000
- DNo change
Explanation
Extra units = 100 x 0.5 = 50. Extra throughput = 50 x 800 = ₹40,000. Extra cost = 100 x 300 = ₹30,000. Net gain = ₹10,000. Ignoring the cost would give ₹40,000.
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