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CMA Final · Strategic Cost Management · Throughput Accounting

Ranjit Auto makes component K in-house using Rs 60 of material and 3 bottleneck hours per unit. A supplier offers K at Rs 150 per unit. Any bottleneck hours released can be used to make other products earning throughput of Rs 50 per bottleneck hour, and other costs are fixed. For each unit of K, what is the better decision under throughput accounting?

Buying is better, with a net gain of Rs 60 per unit. Purchase costs Rs 90 more than the in-house material, but the 3 bottleneck hours released earn Rs 150 of throughput on other products. The Rs 150 gain less the Rs 90 extra cost leaves Rs 60.

  1. AMake; saves Rs 90 per unit
  2. BBuy; gain Rs 150 per unit
  3. CMake; saves Rs 60 per unit
  4. DBuy; gain Rs 60 per unitCorrect

Explanation

Buying costs Rs 150 against Rs 60 of material, an extra Rs 90 per unit. Buying frees 3 bottleneck hours, which earn 3 x 50 = Rs 150 of throughput elsewhere. Net gain from buying = 150 - 90 = Rs 60 per unit. Choosing 'make; saves Rs 90' ignores the throughput earned on the released hours.

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