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John Moffat.
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- February 7, 2019 at 7:36 pm #504282
Hello sir,
I’ve come across a small doubt in calculation part of the question below. Please help me in it!.
Q: Corrie (BPP exam kit)
Corrie produces three products X,Y,Z. The capacity of Corries plant is restricted by process alpha. Process alpha is expected to be operational for 8 hrs per day and can produce 1200 units of X per hour, 1500 units of Y per hour and 600 units of Z per hour.
Selling prices and material costs for each product are as follows:
Product. X. Y. Z
Selling price p.u 150. 120. 300
Material cost pu. 70. 40. 100
Throughtput
Contribution pu. 80. 80. 200
Conversion costs are 720,000 per day.
A change in factory cost arose, giving a new figure for conversion costs per factory hour of 80,000. What is the revised TPAR RATIO for each product?
Solution: throughput contribution per factory hour is calculated as:
X: 80 * (60/0.05mins)= 96000
But I don’t understand why throughput per factory hour is calculated this way.
Shouldn’t we divide throughput pu and factory hour pu?
So then it must have been like 80/(0.05/60)
Sir, please help me in finding out the reason of it being calculated as in the solution.
Thanks in advance!February 8, 2019 at 8:03 am #504478You can get the same figure in several ways.
Given that they can produce 1,200 units per hour, the time per unit is 1/1,200 hours.
Therefore the contribution per hour is 80 / (1/1,200) = $96,000Alternatively (as BPP have done it), if they can produce 1,200 units per hour and if each unit gives a contribution of $80, then the contribution per hour is 1,200 x $80 = $96,000.
What you have written is also fine. Each units takes 0.05 minutes, and therefore the contribution per hour is 80/(0.05/60), which is also equal to $96,000.
It doesn’t matter which way you get the figure – whichever you find the easiest – but the final answer is the same whichever way.
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