(b) Throughput accounting is based on the view that value is not added to a product until the product is eventually sold. There is no value in inventory. When there is a limiting factor restricting production, all costs except for the cost of bought-in materials (raw materials, purchased components) are fixed costs in the short-term, including direct labour costs and associated ‘variable’ overheads.

The aim should be to maximise throughput in a period, where throughput is defined as sales minus the cost of bought-in materials.

The main difference between throughput accounting and marginal costing is in the treatment of direct labour and variable overhead costs as a ‘fixed cost’ in the short-term. In throughput accounting, fixed costs are referred to as ‘factory cost’.

(c) Throughput accounting ratio = Return per bottleneck unit / Factory cost per bottleneck unit
Here, the bottleneck resource is machine time.

To calculate the cost per factory hour, we need to make an assumption about direct labour cost and variable overhead costs. It is assumed that the direct labour cost and variable overhead cost in the answer to part (a) is fixed in the short-term.

Factory cost per machine hour = GH¢248,000 / 32,000 hours = GH¢7.75.

Tutorial note: The aim should be to maximise the throughput accounting ratio, and to ensure that the ratio is higher than 1.0. The throughput accounting ratio for both Product A and Product B is low, close to the minimum acceptable level.

(d) Profit will be maximised by making and selling 12,000 units of Product B (maximum sales demand). This will use up 24,000 machine hours. The remaining 8,000 machine hours should be used to make 5,333.33 units of Product A.