XYZ Ltd produces three products, A, B and C. Further information are given below: ...
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Accounting
XYZ Ltd produces three products, A, B and C. Further information are given below:
Product A
Product B
Product C
Estimated production (units)
500
500
600
Selling price per unit
20
16
10
Material costs per unit
5
7
2
Labour costs and factory overhead cost per unit
8
3
1
Products A, B and C have similar production processes. One of the processes, Capping, has been determined as the bottleneck. There are only four machines available in the Capping department. Each machine has a maximum capacity of 200 hours a month. 1 hour is required in the capping department for each unit of product A, 3 hours for product B and 30 minutes for product C. The management of XYZ Ltd has noted that labour and factory overhead costs are constant at 10,000.
a. Calculate the throughput accounting ratio for products A, B and C and advice the management of Term Plc on the number of units of each product to make in a month. Show all workings.
b. Comment on other factors Term Plc could consider in order to maximise their operating profit given the bottleneck resource.
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