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Hi John,
Skye Limited has a two process environment
Process P: Each machine produces 6 units an hour and Skye has 8 machines working at 90% capacity.
Process Q: Each machine produces 9 units per hour and Skye has 6 machines working at
85% capacity.
One of Skye products is Cloud and is selling at
price of $20 although discounts of 15% apply. Material costs are $5.
Cloud spends 0.2 hours in process P but 0.3 hours in process Q.
What is Cloud’s throughput per hour in its bottleneck process?Could you please help me with the solution
hi John i have one more question but related to target sales volume
P1 P2
Selling price 10·00 8·00
Direct materials 3·50 4·00
Direct labour 1·50 1·00
Variable overhead 0·60 0·40
Fixed overhead 1·20 1·00
Profit per unit 3·20 1·60Product P1 10,000 units
Product P2 12,500 units
The fixed overhead costs included in P1 relate to apportionment of general overhead costs only.P2 INCLUDES specific fixed overheads totalling $2,500.
If only product P1 were to be made, how many units would need to be sold in order
to achieve a profit of $60,000 each year?Please do not simply set questions and expect an answer – you must have answers in the same book in which you found the question, and so you should ask about whatever it is in the answer that you are not clear about.
Also, please do not ask questions on different topics in the same thread. You must start a new thread – it is because our answers are to benefit all students. We do not give private tuition 🙂First question: Process P can produce 6 x 8 x 90% = 43.2 units per hour. Process Q can produce 9 x 6 x 85% = 45.9 units per hour. So Process P is the bottleneck.
Therefore the throughput return per hour is ((20 x 15%) – 5) / 0.2Have you watched my free lectures on throughput accounting?
Second question:
Currently the total fixed overheads are (10,000 x $1.20) + (12,500 x $1) = $24,500.
If only P1 were to be made, the specific fixed overheads for P2 will disappear, and therefore the total fixed overheads will be $22,000.Therefore to get a profit of $60,000 they need a contribution of $82,000.
Then as normal, divide by the contribution per unit for P1 of $4.40 to get the number of units they need to sell.
Have you watched my free lectures on CVP analysis?
The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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