ACCA F5 - Performance Measurement

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Lecture 4
Throughput
Accounting
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ACCA F5 - Performance Measurement

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Illustration 1
No. Units Sold Per Day
Sales Price
Direct Materials Cost per unit
Other Factory Costs per Day
No. Hours of bottleneck used per day

500
25
10
6000
8

Required
(i) Calculate the Return Per Factory Hour.
(ii) Calculate the Throughput Accounting Ratio.
(iii) Suggest how could the ratio be improved.

Solution
(i)
Working

Sales Per Day

(500 x 25)

12,500

Direct Materials

(500 x 10)

-5000
7,500

Usage of bottleneck hours per day

Return Per Factory Hour

8
(7,500 / 8)

938

ACCA F5 - Performance Measurement

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(ii)
Working
Return Per Factory Hour

$
938

Total Factory Costs Per Hour

(6,000 / 8)

750

Throughput Accounting Ratio

(938 / 750)

1.25

(iii)
To improve the throughput accounting ratio a firm may:
Increase the selling price per unit
Reduce material costs per unit if possible
Reduce the time on the bottleneck process
Redesign the bottleneck process
Invest in capacity to increase the bottleneck

ACCA F5 - Performance Measurement

www.mapitaccountancy.com

Test Your Knowledge

If you cant answer all of the questions below without
looking at the answer then you need to do some more
work on this area!
1. What type of manufacturing environment is Throughput Accounting suitable for?
2. Why is producing goods for inventory seen as bad?
3. What is the theory of constraints?
4. How do we calculate throughput contribution?
5. What are the 4 concepts behind Throughput Accounting?
6. What is the return per factory hour?
7. How do you calculate the Throughput Accounting Ratio?
8. What does it tell you?
9. How can you improve it?
10. State 3 other factors should be considered before ceasing production based on the
THAR.

If youve successfully answered all of the above

questions then youre ready to do the exam questions
below:
June 2009 Q1
June 2011 Q5

Now do it!

ACCA F5 - Performance Measurement

www.mapitaccountancy.com

Test Your Knowledge Answers

If you cant answer all of the questions below without
looking at the answer then you need to do some more
work on this area!
1. What type of manufacturing environment is Throughput Accounting suitable for?
Just In Time
2. Why is producing goods for inventory seen as bad?
It ties up cash.
It increases costs eg. storage, insurance, etc.
It increases the risk of obsolescence.
It is an inefcient use of resources.
3. What is the theory of constraints?
There are constraints within production processes called bottlenecks that will
limit the amount that a factory can produce in a certain time period.
Management should focus on these bottlenecks to speed up production.

4. How do we calculate throughput contribution?

Sales Price less Direct Materials cost.

5. What are the 4 concepts behind Throughput Accounting?

All costs except materials are xed in the short term.
Inventory is bad.
Sales = Prot.
No demand = no production
6. What is the return per factory hour?
Throughput contribution per day / bottleneck hours per day.

7. How do you calculate the Throughput Accounting Ratio?

Return Per Factory Hour / Other Factory Costs Per Factory Hour

ACCA F5 - Performance Measurement

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8. What does it tell you?

Are we making a prot.

9. How can you improve it?

Increase the selling price per unit

Reduce material costs per unit if possible

Reduce the time on the bottleneck process

Redesign the bottleneck process

Invest in capacity to increase the bottleneck

10. State 3 other factors should be considered before ceasing production based on
the THAR.
Customer Perception.
Long term impact on the business.
Lost related sales.
Excess capacity.

If youve successfully answered all of the above

questions then youre ready to do the exam questions
below:
June 2009 Q1
June 2011 Q5

Now do it!

ACCA F5 - Performance Measurement

www.mapitaccountancy.com

Lecture 5
Environmental
Accounting
www.mapitaccountancy.com

ACCA F5 - Performance Measurement

www.mapitaccountancy.com

Test Your Knowledge

If you cant answer all of the questions below without
looking at the answer then you need to do some more
work on this area!
1. What is environmental costing?
2. What are the 2 categories of environmental cost?
3. Give 3 examples of costs in each of the categories.
4. Who are external environmental costs imposed upon?
5. Are these costs recognised in traditional methods of costing?
6. Name 3 methods of environmental costing.
7. What are the advantages of environmental costing?
8. What are the disadvantages of environmental costing?

If youve successfully answered all of the above

questions then youre ready to do the exam questions
below:
New area of the syllabus so no questions (yet!)

Now do it!

ACCA F5 - Performance Measurement

www.mapitaccountancy.com

Test Your Knowledge Answers

If you cant answer all of the questions below without
looking at the answer then you need to do some more
work on this area!
1. What is environmental costing?
Environmental costing seeks to quantify the environmental effect of a business and
treat it in the same manner as any other cost.

2. What are the 2 categories of environmental cost?

Internal & External

3. Give 3 examples of costs in each of the categories.

Internal
Systems to identify costs.
Waste disposal costs.
Product take back costs.
Costs of regulations.
Cost of permits.
Decommissioning costs
External
Carbon emissions
Use of energy and water.
De-forestation.
Health care costs.
Social costs.

4. Who are external environmental costs imposed upon?

Society as a whole.

5. Are these environmental costs recognised in traditional methods of costing?

ACCA F5 - Performance Measurement

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No - they tend to be categorised with other costs if at all.

6. Name 3 methods of environmental costing.

Environmental activity based costing.
Inflow/outflow analysis.
Flow cost accounting.

7. What are the advantages of environmental costing?

Creation of realistic product costs.
Better pricing through an understanding of the cost.
Raising awareness of the environmental impact of the firm.
Integration of environmental costs into the business.

8. What are the disadvantages of environmental costing?

It takes time and money to implement.
The calculation ifs difficult and and often inaccurate.
Many of the costs identified are not actually borne by the firm.
Some of the costs are intangible and therefore difficult to quantify.
It is disadvantageous to the company to include the cost.

If youve successfully answered all of the above

questions then youre ready to do the exam questions
below:
New area of the syllabus so no questions (yet!)

Now do it!