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Hello tutor,
How are you,
4 On Friday, due to a local food festival at the weekend, Sweet Treats Bakew is considering increasing its production of cupcakes. These cupcakes can be sold at the festival at the existing selling price.
The company has unlimited capacity forweighing and mixing on Friday but its existing three ovens are already fully utilised. Therefore in order to supply cupcakes to the festival, Sweet Treats Bakery will need to hire another identical oven at a cost of $45 for the day.
How much will profit increase by if the company hires the new oven and produces as many cupcakes as possible?
A $55.00
B
$140.00
C
$95.00
D
$31.00Here the question is about the increase in the profit ,but the answer is actually the Throughput amount for the extra oven
(2-.25) * (80 more units) =140-the cost of hiring 45=95So do we have to assume that the question meant the throughput not the profit after considering fixed cost.
Thanks
The question is specifically asking about the increase in profit from hiring the new oven. The calculation shows that the additional throughput from producing more cupcakes is $ 140 more
The Selling price is 2
Mat Cost 0.25
Therefore 1.75 * 80 = $140Less the hire cost of $45 per day
So profit will increase by $95
The question is about the net profit increase after considering the cost of hiring the oven, not just the throughput amount.Hi,
What about the fixed cost if we talk about net profit. Because we have variable labour which is part of fixed cost because we are using throughput accounting.
logically labour will also reduce the profit ,so here why it is ignored.Thanks,
Fixed costs are ignored because Sweet Treats Bakery uses throughput accounting, which focuses on variable costs (like materials) and treats fixed costs as sunk costs that do not change with the level of production.
Thus, only the variable costs directly associated with the additional production are considered in the profit calculation.
Please look at this question and watch our video again
https://opentuition.com/acca/pm/throughput-accounting-acca-performance-management-pm/
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