- This topic has 7 replies, 4 voices, and was last updated 1 year ago by
.
- Posts
A manufacturing company uses machine C, which is operational for five hours a day to manufacture four products: W, X, Y and Z. Factory costs are $150,000 per day. The company uses throughput accounting and its objective is to maximize profits.
Information relating to these products is as follows:
Products——-Production rate per machine hour (units)
—–W——————————–200
—–X———————————500
—–Y———————————400
—–Z———————————350Selling Price per unit—-Material cost per unit—–Conversion cost per unit
———-$350————————–$120—————————-$40
———-$190————————–$95——————————$25
———-$270————————–$160—————————-$20
———-$215————————–$75——————————$35If the company is not able to increase the availability of machine C’s
operational hours, what is the production ranking of product Y?Options:
A. First
B. Second
C. Third
D. ForthThe correct answer is D (fourth)
According to my answer product Y ranking is Third.
Throughtput per machine hour is as follows :
W = $230 / 5 = $46
X = $95 / 5 = $19
Y = $110 / 5 = $22
Z = $140 / 5 = $28Please correct me If I am wrong….
You are wrong.
If they can produce W at the rate of 200 units every hour, then the throughput per machine hour is 200 x $230 = $46,000.
It is similar workings for each of the other three products.
Sir, we always prioritize our ranking based on throughput cost per machine hour but here we are calculating it on total figures of throughput per machine hour.
Is it because every product is making a different number of units that changes the total throughput costs figures?
The rankings are always based on the throughput return per hour.
If you do not like the workings I wrote before then the alternative (which is more common but here takes a bit longer) is to say that the time taken to produce 1 unit of W is 1/200 hours.
The throughput return per unit of W is $230.
Therefore the throughput return per hour is 230 / (1/200) = $46,000.Do watch my free lectures again on throughput accounting.
Sorry to ask again but I was confused…
200 units of product W is to be produced while all the fours products (W, X, Y, Z) takes 5 hours a day.
Therefore, every unit of W takes 0.025 hours per unit and so on.
Product————————W————X————Y—————Z
Throughput cost————230———-95———110————140
Machine hour / unit——-0.025——-0.01——0.0125——–0.01429
Throughput per hour—–9200——-9500——–8800———–9800
Ranking————————3————-2————4—————1We should make Product Y in fourth ranking
Is this correct because this is what you did in your lecture???
Thanks for your time 🙂
Nowhere does it say that the products take 5 hours a day to produce.
What you have done is certainly not what I do in my lectures!!!
As I wrote before, the time to produce 1 unit of W is 1/200 hours (or, if you prefer, 0.005 hours).
Therefore the throughput return per hour is 230 / 0.005 = $46,000.
This is exactly what I do in my lectures and the products are ranked according to the throughput return per hour.
Mr. Moffat,
why is the covernsion cost not put in to consideration?
Thank you always.
In throughput accounting, the focus is primarily on the variable costs, particularly the cost of materials. This approach assumes that in the short run, the only truly variable cost is the cost of materials. Other costs, such as conversion costs (e.g., labour and overhead), are considered fixed or semi-fixed and are not directly factored into the throughput accounting calculations.
The rationale behind this is that conversion costs are often incurred regardless of the level of production or sales, and they are not directly affected by changes in throughput.
- You must be logged in to reply to this topic.