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Hello Tutor, I’ve read your answer about the question 29 from the Bpp mock exam 3 Dec 2016 but i’m still confused on how you calculate the profit. Below is the brief question:
Sweet Treats Bakery makes 3 types of cake including cupcakes.
It has batch size (unit):20, Selling price $2, Material cose $0.25, Labour cost $0.5, Overhead $0.39 for each unit.
Time for baking a batch is 120 minutes. Normally 3 ovens provide totally 1,440 minutes of baking.
On Friday, due to local food festival, it’s considering increase its production of cake by hiring another oven at cost of $45/day.
Question is calculate how much will profit increase by if the company hire the new oven.
Your answer is as below:
Currently Baking has 1,440 minutes available. This is for 3 ovens, and so 1 more oven will give them 1,440/3 = 480 more minutes.
Therefore they can produce 480/120 = 4 more batches of C, which is 4 x 20 units.
Therefore they will make 80 x (2 – 0.25) = $140 more profit.
The oven costs $45, so the net increase = 150 – 45 = $95What i don’t understand here is why you don’t deduct the Labour cost but only count material cost to the profit? The question ask profit, not throughput.
Please help to explain on this. Thank you.The last line of the scenario for questions 26 to 30 says that they use throughput accounting.
As I explain in my free lectures, we are always concerned with the profit – throughput accounting is simply the assumption we make in deciding how to maximise the profit.
Thank you very much, John. I should had read the scenario more carefully. I will note it for the exam tomorrow. Once again, thank you and have a nice day.
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