- This topic has 7 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Hi sir! This is regarding a throughput accounting sum from BPP revision kit Q18 Thin co. – private hospital….
My doubt is in finding optimum product and the maximum profit
This question is regarding a serviceTo find the max profit what I did was just like for a product I found the optimum production(procedure) mix and then mutiplied by the throughput per procedure.
Later deducted the total factory cost to derive at the profit.But what the marking scheme has done is they’ve taken the optimum hours (not procedures) and have multiplied that by the throughput per factory hour( not the throughput per hour) why is this?
All this time I was thinking throughput per factory hour ( throughput per limiting factory) , we find that for RANKING purpose only. Why do we multiply by that to derive at the profit? Also why did they consider the hours not the procedures?Hope my doubt is clear for you to understand. Really sorry for the trouble.
Thank you
DevnieMultiplied by throughout per factory hour ( not throughput per procedure) * sorry typing mistake
You can either multiply the procedures by the throughput per procedure, or alternatively multiply the house by the throughput per hour. Both will give the same result.
(Have you watched our free lectures on throughput accounting? Our free lectures cover everything needed to be able to pass Paper F5 well.)
Yes sir I did watch your lectures and after that started trying out BPP revision kit sums. I tried to work out the profit in both ways, but it gives two different answers 🙁
Isn’t throughput per limiting factor calculated for ranking purpose only? Why do we use that to calculate profit. If you don’t mind can you explain me the logic behind it. In your lecture sir, you found profit by using total contribution less the factory overheads ( that is you found return with optimum production mix into return per unit , less total fixed cost) you did not consider return per factory our in profit calculations.
Excuse me if I’ve misunderstood the concepts. Just a bit confused. 🙁
You have misunderstood and I do suggest you watch the lecture again (because in the throughput example I certainly do not take the contribution less the fixed overheads!).
In key factor analysis we rank by contribution per hour, and then the profit is the total contribution less the fixed overheads.
Throughput accounting is exactly the same logic except that we assume all costs except for materials are fixed (and instead of using the word contribution for revenue less materials, we use the word throughput). So in throughput accounting we rank by throughput per hour (return per hour), and then the profit is the total throughput (return) less the total fixed overheads (which includes everything except materials).
Okay sir! Thank you so much! Thank you for your time!
I will re watch your lecture again.
I should be okay after that 🙂Take care 🙂
- You must be logged in to reply to this topic.