Question Tag: Bottleneck Resources

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  • 3 Marks

MA – April 2022 – L2 – Q2b – Advanced variance analysis

Calculate and comment on the Throughput Accounting Ratios of three products for Drogo.

Drogo uses the Throughput Accounting technique for efficient allocation of scarce resources. In the second quarter of 2021, the throughput per bottleneck resource for its three products were given as follows:

  • Product A: GH¢4
  • Product B: GH¢6
  • Product C: GH¢9

The total factory cost was GH¢67,500, and the bottleneck resource was 15,000 machine hours.

Required:

Calculate and comment on the Throughput Accounting Ratios of the three products. (3 marks)

Throughput Accounting Ratio (TPAR) is a relative measure that shows how many times the throughput per limited resource can cover the factory cost per limited resource. The formula for TPAR is:

TPAR=

Calculation:

  • Factory cost per bottleneck resource:
    Factory cost per bottleneck=
  • TPAR for Product A: TPAR=
  • TPAR for Product B: TPAR=
  • TPAR for Product C: TPAR=

Comment:

  • Product A: TPAR is less than 1 (0.89), indicating that Product A is not profitable as its throughput cannot cover the factory cost per bottleneck resource.
  • Product B: TPAR is greater than 1 (1.33), suggesting that Product B is profitable.
  • Product C: TPAR is the highest (2.00), indicating that Product C is the most profitable among the three products.
  • 12 Marks

MA – April 2022 – L2 – Q2a – Activity-based costing

Evaluate the bottleneck resource at Pikambi Hospital and suggest ways to reduce turnaround time.

The Pikambi Hospital serves a community with a population of about 20,000. For Out Patients Department (OPD) services, there are three basic stages to seeing the doctor which have been described below:

Stage 1
Records: This is where files of patients are kept. On arrival, a patient presents the identity card together with the National Health Insurance Scheme (NHIS) card. There are two biometric verification machines to confirm the validity of the card and recording of basic personal data on the claim forms. The process takes approximately 10 minutes per machine. Workers here work from 6:00 am to 4:00 pm.

Stage 2
Vitals: Here vital personal information about the patient’s current health status is checked; i.e. temperature, pulse, blood pressure, weight, and sugar levels. There is one machine with 5 nurses. It takes some 6 minutes for one patient to go through the process. The unit also works from 6:00 am to 4:00 pm.

Stage 3
Consultation: There are six doctors who run six-hour shifts a day. Each doctor spends an average of 15 minutes seeing a patient. The community has been complaining about the turnaround period and blames it on the incompetence of the nurses to the extent that sometimes patients stay in queues for long hours and return home unattended.

Required:

i) With appropriate computations, evaluate and assess the bottleneck resource(s) at Pikambi Hospital. (6 marks)

ii) Suggest THREE (3) ways by which the turnaround time can be reduced at the hospital. (6 marks)

i) Bottleneck Resource Evaluation:

  • Stage 1:
    • Available time = 10 hrs × 60 mins × 2 machines = 1,200 mins
    • Time taken to process one patient = 10 mins
    • Total number to be attended to = 1,200 ÷ 10 = 120 patients
  • Stage 2:
    • Available time = 10 hrs × 60 mins = 600 mins
    • Time taken to attend to one patient = 6 mins
    • Total number that can be attended to in a day = 600 ÷ 6 = 100 patients
  • Stage 3:
    • Available time = 6 doctors × 6 hrs × 60 mins = 2,160 mins
    • Time taken to attend to one patient = 15 mins
    • Total number to be attended to = 2,160 ÷ 15 = 144 patients

The bottleneck resource is Stage 2, where only 100 patients can be processed compared to 120 in Stage 1 and 144 in Stage 3.

ii) Suggestions to Reduce Turnaround Time:

  1. Add More Machines at Stage 2: Increase the capacity at the vitals stage by adding more machines or personnel to handle the process.
  2. Ensure Equipment Efficiency: Regular maintenance and checks should be conducted to ensure that the machines at Stage 2 function efficiently.
  3. Increase Working Hours or Implement Shifts: Consider extending the working hours or introducing shifts to accommodate more patients during peak hours.

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