(a) Flopro plc make and sell two products A and B, each of which passes through the same automated production operations.
The following estimated information is available for period 1:
(i)

(ii) Production/sales of products A and B are 120 000 units and 45 000 units respectively. The selling prices per unit for A and B are £60 and £70 respectively.
(iii) Maximum demand for each product is 20 per cent above the estimated sales levels.
(iv) Total fixed production overhead cost is £1 470 000. This is absorbed by products A and B at an average rate per hour based on the estimated production levels.
Required:
Using net profit as the decision measure, show why the management of Flopro plc argues that it is indifferent on financial grounds as to the mix of products A and B which should be produced and sold, and calculate the total net profit for period 1.
(b) One of the production operations has a maximum capacity of 3075 hours which has been identified as a bottleneck which limits the overall production/sales of products A and B. The bottleneck hours required per product unit for products A and B are 0.02 and 0.015 respectively.
All other information detailed in (a) still applies.
Required:
Calculate the mix (units) of products A and B which will maximize net profit and the value (£) of the maximum net profit.
(c) The bottleneck situation detailed in (b) still applies. Flopro plc has decided to determine the profit maximizing mix of products A and B based on the throughput accounting principle of maximizing the throughput return per production hour of the bottleneck resource. This may be measured as:
Throughput return per production hour = selling price - material cast)
bottleneck hours per unit
All other information detailed in (a) and (b) still applies, except that the variable overhead cost as per (a) is now considered to be fixed for the short/intermediate term, based on the value (£) which applied to the product mix in (a).
Required:
(i) Calculate the mix (units) of products A and B which will maximize net profit and the value of that net profit.
(ii) Calculate the throughput accounting ratio for product B which is calculated as:
throughput return per hour of bottleneck resource f or product B
overall total overhead cost per hour of bottleneck resource
(iii) Comment on the interpretation of throughput accounting ratios and their use as a control device. You should refer to the ratio for product B in your answer.
(iv) It is estimated that the direct material cost per unit of product B may increase by 20 per cent due to shortage of supply.
Calculate the revised throughput accounting ratio for product B and comment on it.

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Product unit data: Direct material cost (E) Variable production overhead cost (E) 28 4 Overall hours per product unit (hours) 0.25 0.15 2 40