ACCA PM · Chapter 4
Throughput accounting and environmental management accounting MCQs with Answers
10 multiple-choice questions on Throughput accounting and environmental management accounting for ACCA PM Performance Management. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Rho Co makes product P, which sells for $50 per unit and uses $20 of direct materials per unit. Each unit needs 0.5 hours on the bottleneck machine. Total factory costs (all labour and overheads) are $600,000 per year and 25,000 bottleneck hours are available per year. What is the throughput return per bottleneck hour for product P?
- A) $60
- B) $30
- C) $100
- D) $24
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Answer: A) $60
Throughput per unit = selling price - direct materials = $50 - $20 = $30. Return per bottleneck hour = $30 / 0.5 hours = $60.
Question 2
Rho Co makes product P, which sells for $50 per unit and uses $20 of direct materials per unit. Each unit needs 0.5 hours on the bottleneck machine. Total factory costs (all labour and overheads) are $600,000 per year and 25,000 bottleneck hours are available per year. What is the throughput accounting ratio (TPAR) for product P?
- A) 1.25
- B) 0.40
- C) 4.17
- D) 2.50
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Answer: D) 2.50
Return per factory hour = ($50 - $20) / 0.5 = $60. Cost per factory hour = $600,000 / 25,000 = $24. TPAR = $60 / $24 = 2.50. A TPAR above 1 means the product generates more throughput than it costs to run the factory for the time it uses.
Question 3
In throughput accounting, how is throughput defined?
- A) Sales revenue less all variable costs
- B) Sales revenue less direct material costs
- C) Sales revenue less direct material and direct labour costs
- D) Contribution less fixed production overheads
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Answer: B) Sales revenue less direct material costs
Throughput accounting treats only direct materials as truly variable. Throughput is therefore sales revenue minus direct material cost; labour and overheads are treated as fixed factory costs.
Question 4
A product currently has a throughput accounting ratio of 0.9. Which of the following actions would improve its TPAR?
- A) Paying overtime to non-bottleneck staff to increase their output
- B) Reducing the selling price of the product
- C) Negotiating a lower price for the product's direct materials
- D) Building up inventory at non-bottleneck stages of production
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Answer: C) Negotiating a lower price for the product's direct materials
TPAR = (throughput per bottleneck hour) / (factory cost per hour). Lower material prices increase throughput per unit and so raise the ratio. Overtime at non-bottleneck stages adds cost without increasing output through the bottleneck, a lower price reduces throughput, and extra inventory ties up cash without increasing sales.
Question 5
Sigma Co has a bottleneck in its painting process. Details of three products are: Product A: price $40, direct materials $16, painting time 12 minutes Product B: price $55, direct materials $25, painting time 20 minutes Product C: price $30, direct materials $6, painting time 15 minutes Using throughput accounting, in what order should the products be ranked for production?
- A) B, A, C
- B) C, A, B
- C) A, B, C
- D) A, C, B
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Answer: D) A, C, B
Throughput per bottleneck hour: A = ($40 - $16) / (12/60) = $120; B = ($55 - $25) / (20/60) = $90; C = ($30 - $6) / (15/60) = $96. Ranking by return per bottleneck hour gives A ($120), C ($96), then B ($90). Ranking by throughput per unit would wrongly put B first.
Question 6
According to the theory of constraints, what is the first of the five focusing steps?
- A) Elevate the bottleneck by buying extra capacity
- B) Subordinate all other processes to the bottleneck
- C) Decide how to exploit the bottleneck
- D) Identify the system's bottleneck
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Answer: D) Identify the system's bottleneck
The five focusing steps are: identify the constraint, decide how to exploit it, subordinate everything else to it, elevate it, and then return to step one if the constraint has moved. Elevating the constraint by investing in capacity comes only after the existing capacity has been fully exploited.
Question 7
Which of the following statements is consistent with the principles of throughput accounting?
- A) Inventory should be built up at every stage of production to protect output
- B) Work in progress is valued at full absorption cost to boost reported profit
- C) Products should be ranked according to their contribution per unit
- D) Direct labour costs are treated as part of fixed factory costs
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Answer: D) Direct labour costs are treated as part of fixed factory costs
Throughput accounting assumes labour is a fixed cost in the short term, so all costs other than materials are fixed factory costs. It discourages building inventory except before the bottleneck, values inventory at material cost only, and ranks products by throughput per bottleneck unit rather than per unit.
Question 8
An environmental management accounting technique records all physical inputs of materials and energy, and balances them against outputs of finished products, waste and emissions, so that unexplained differences can be investigated. What is this technique?
- A) Life-cycle costing
- B) Input/output analysis
- C) Activity-based costing
- D) Environmental impact assessment
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Answer: B) Input/output analysis
Input/output analysis operates on the principle that what comes in must go out: physical inputs are balanced against product outputs and waste. Any difference highlights material losses or unrecorded waste that can be costed and reduced. Flow cost accounting extends this idea by valuing the material flows.
Question 9
A chemical company estimates the compensation and clean-up costs that might arise if an accidental spill from its plant polluted a nearby river. Using the US Environmental Protection Agency classification of environmental costs, how would these costs be classified?
- A) Contingent costs
- B) Conventional costs
- C) Image and relationship costs
- D) Potentially hidden costs
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Answer: A) Contingent costs
Contingent costs are costs that may be incurred at a future date depending on events, such as fines, compensation and remediation after an accident. Conventional costs are ordinary operating costs such as materials and energy, potentially hidden costs are buried in general overheads, and image and relationship costs relate to stakeholders' perceptions.
Question 10
Using Hansen and Mendoza's classification of environmental costs, the cost of cleaning up a lake that has been polluted by a factory's waste water would be classified as which type of cost?
- A) External failure cost
- B) Prevention cost
- C) Detection cost
- D) Internal failure cost
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Answer: A) External failure cost
External failure costs arise after contaminants have been released into the environment, for example cleaning a polluted lake. Prevention costs are incurred to stop waste being produced, detection costs check compliance, and internal failure costs are incurred to deal with waste that has been produced but not yet released.