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Advanced Costing Methods

6.6 Multi-product decision making

Throughput accounting may be applied to a multi-product decision
making problem in the same way as conventional key factor analysis.

The objective in exam questions is to maximise profit. Given that fixed costs are
unaffected by the production decision in the short run, the approach should be
to maximise the throughput earned.

1 Step 1: Identify the bottleneck constraint.

2 Step 2: Calculate the throughput per unit for each product.

3 Step 3: Calculate the throughput per unit of the bottleneck resource for
each product.

4 Step 4: Rank the products in order of the throughput per unit of the
bottleneck resource. If all products are made in the same factory, then the
ranking can be done on return per hour as the cost per hour will be the
same; however, if not, the ranking is done on TPAR.

Step 5: Allocate resources using this ranking and answer the question.
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Illustrations and further practice

Now try TYU 3, ‘Justin Thyme’, as well as Objective Test Case question ‘CBF
Throughput accounting’.

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