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A organisation operates for 10 hours a day, 5 days a week for 50 weeks of the year. It is anticipated that annual conversion costs will be $1,800,000.
What is the conversion cost per day?There is no point in setting me test questions and expecting me to provide an answer.
You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about and then I will help you.
Try calculating how many days work there is in a year – it is not difficult 🙂
To get the cost per day, divide the total cost per year by the total number of days worked per year.
CD plc produces a single product, the BC, which passes through three different processes, Alpha, Beta and Gamma. The throughput per hour of the 3 processes is 25, 30 and 32 units of BC respectively. The organisation operates for 10 hours a day, 5 days a week for 50 weeks of the year. The BC can be sold for $420 per unit and it has a material cost of $170 per unit. It is anticipated that the annual conversion cost will be $1,800,000.
What is the throughout accounting ratio per day?Can you explain this answer step-by-step, getting the numerator as well as the denominator. I am terribly confused. Thank you, sir.
Question #2(unrelated to the previous): How does, reducing machine time per unit to make a product, have NO effect on the throughput accounting ratio. Can you please explain this with an example as well.
Thanking you in advance, Sir.The bottleneck process is Alpha, because it has the lowest throughput per hour.
The throughput is 420 – 170 = 250
The time in Alpha is 1/25 hours
Therefore the return per factory hour = 250 / (1/25) = $$6250The cost per factory hour = 1.8M / (10 x 5 x 50) = $720
Therefore the TAR = 6,250 / 720 = 8.68
Have you watched my free lectures on this?
With regard to your second question, reducing the time per unit will increase the TAR. I know that an answer in one of the Revision Kits says different, but it is wrong.
Much appreciated sir!!
The steps in the revision kit are different and it was confusing.
This makes more sense!For #2, Yes, increase of the TAR is what I thought too. Understood!
Yes, i have watched the lectures. They, indeed, are very helpful 🙂
Thank you again for your help sir!
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