Ican 2025 Performance Management Question 7

Yaro Ltd makes two types of solar panels at its manufacturing plant: Red panels for commercial customers and Black panels for domestic customers. All panels are produced using the same materials, machinery and a skilled labour force. Production takes place for five days per week, from 7am until 8pm (13 hours), 50 weeks of the year. Each panel has to be cut, moulded and then assembled using a cutting machine (Machine C), a moulding machine (Machine M) and an assembly machine (Machine A). As part of a government scheme to increase renewable energy sources, Yaro Ltd has guaranteed not to increase the price of Black or Red panels for the next three years. It has also agreed to supply a minimum of 1,000 black panels each year to domestic customers for this three-year period. Due to poor productivity levels, late orders and declining profits over recent years, the Finance Director has suggested the introduction of throughput accounting within the organisation, together with a ‘Just in Time’ system of production. Material costs and selling prices for each type of panel are shown below. Selling price per unit: Red panels ₦12,600, Black panels ₦3,800. Material costs per unit: Red panels ₦4,300, Black panels ₦1,160. Total factory costs, which include the cost of labour and all factory overheads, are ₦12million each year at the plant. Out of the 13 hours available for production each day, workers take a one hour lunch break. For the remaining 12 hours, Machine C is utilised 85% of the time and Machines M and A are utilised 90% of the time. The unproductive time arises either as a result of routine maintenance or because of staff absenteeism, as each machine needs to be manned by skilled workers in order for the machine to run. The skilled workers are currently only trained to work on one type of machine each. Maintenance work is carried out by external contractors who provide a round the clock service (that is, they are available 24 hour a day, seven days a week), should it be required. The following information is available for Machine M, which has been identified as the bottleneck resource: Red panels Hours per unit 1.4, Black panels Hours per unit 0.6. There is currently plenty of spare capacity on Machines C and A. Maximum annual demand for Red panels and Black panels is 1,800 units and 1,700 units respectively.