A manufacturing company has to decide which of three mutually exclusive products to make in its factory, on the basis of maximising its throughput accounting ratio. This is because the company cannot make enough of any of the products to satisfy external demand entirely, since machine hours are restricted.

Current data for the three products is shown below:

Product X() Y() Z()

Selling price per unit 60 40 20

Direct material cost per unit 40 10 16

Machine hours per unit 10 20 2.5

You are required:

a). To calculate the throughput (return) per factory hour for each product and confirm which of the three products will be produced. (4 marks)

b). For each of the following actions, calculate the throughput per factory hour and confirm which of those actions would increase the existing throughput accounting ratio. (10 marks)

i). Increase the selling price of product Z by 10%

ii). Increase the selling price of product Y by 10%

iii). Reduce the material cost of product Z by 5%

iv). Reduce the material cost of product Y by 5%

c). How much would the selling price per unit of product Y need to be increased by in order for product Y to be selected for production? (3 marks)

d). How much would the direct material cost per unit of product Z need to be reduced by in order for product Z to be selected for production? (3 marks)