b. Richard Ltd makes three products, Soya, Milco and Yoghurt. All the three products must be offered for sale each month in order to provide a complete market service. The products are fragile and their quality deteriorates rapidly shortly after production. The products are produced on two types of machine and worked on a single grade of direct labour. Fifty direct employees are paid 8.00 per hour for a guaranteed minimum of 160 hours per month. All the products are first pasteurised on a machine type A and then finished and sealed on a machine type B. The machine hour requirements for each of the products are as follows: Soya Milco Yoghurt Hours per unit Hours per unit Hours per unit Machine Type A 1.5 4.5 3.0 Machine Type B 1.0 2.5 2.0 The capacity of the available machines type A and B are 6,000 hours and 5,000 hours per month respectively. Details of the selling prices, unit costs and monthly demand for the three products are as follows: Soya Milco Yoghurt per unit per unit per unit Selling price 910 1,740 1,400 Concentrate cost 220 190 160 Other direct material cost 230 110 140 Direct labour cost @ 8.00 per hour 60 480 360 Overheads 240 620 520 Profit 160 340 220 Maximum monthly demand (units) 1200 700 600 Although, Richard Limited uses marginal costing and contribution analysis as the basis for its decision making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods inventories are valued in the monthly management accounts at full absorption cost. You are required to:

c. Explain why throughput accounting might provide more relevant information in Richards circumstances. (6 Marks)

d. Use a throughput approach to calculate the throughput maximising monthly output of the three products (6 Marks)

e. Explain the throughput accounting approach to optimising the level of inventory and its valuation. Contrast this approach to the current system employed by Richard. (6 Marks)