Why can't anybody else explain it as simple as he does?
Thanks a lot
B
Barry·
He's a great teacher and resource
J
John·
Hello sir,
Why did you have to exclude materials cost from the factory cost, when calculating cost per factory hour
J
John MoffatTutor·
Because, as explaining in the lecture, it is only the material cost that is treated as being a variable cost. all the other costs are regarded as being fixed in the short-term and it is these that are called the factory cost.
S
Sohaibb·
Dear Sir, I tried to ask the question in ask the tutor section but there was a problem. My question is why won't you deduct the OTHER VARIABLE COSTS to get the throughput in example number 2 of throughput accounting? As it is mention that it is variable. Won't we need to deduct all the variable costs? Thanks Sir.
S
Sohaibb·
It is clear now. Sorry, I did not read the question properly earlier, but after reading it again, it is clear now. I don't know how to delete the comment so I am posting It here.
K
Kriszta·
Hi John,
In the Kaplan Exam Kit, at the throughput accounting exercises the answer says "if none of the processes are limited [i.e. bottleneck], then increasing demand would improve throughout." (Q59)
Can you please explain the logic behind?
F
Farhaan·
since there is no bottleneck we can produce as much as we want therefore if the demand were to go up we would be able to gain more contribution thus increasing the overall throughput
M
manlian90·
Sir, why did we put 10,000 units of B (instead of 8,000 units) when we calculate fixed cost in throughtput to get in maximum profit? There were only 8,000 units of product B we have got in optimal plan.
J
John MoffatTutor·
I do explain the reason in the lecture!! The total fixed costs stay constant (by definition) and so the total is as was originally budgeted and does not change with the actual level of production.
M
manlian90·
Sir, why did we put 10,000 units of B (instead of 8,000 units) when we calculate fixed cost in throughtput after ranking process? There were only 8,000 units of product B we have got in optimal plan.
D
Dmitry·
Sir, today was an exam, and in part C there was a question, to define limiting resource and define optimal production plan.
And the second part was to analyze make or buy decision.
so, the first part of this task. Should it be calculated according to throughput accounting where Contribution is sales - materials?
thank you in advance!
J
John MoffatTutor·
It sounds more like linear programming, but I cannot say without having seen the question.
D
Dmitry·
Hello sir!
Could you please explain the moment in the example 2 with other variable costs. It is a little it confusing because they call it variable costs and according to throughput accounting we assume that the only variable costs is materials. Could there be a situation when by meaning variable costs they really mean it is variable cost and we should bear it in mind. Or in the end it doesn't really matter for us when using throughput?
thank you in advance
J
John MoffatTutor·
For throughput costing all costs other than materials are treated as being fixed costs, as I do explain the lecture.
I
Ivan·
This makes no sense to me at all.
A: 100 sales price, 50 material = 50 contribution / 1 hour = 50
B: 100 sales price, 60 material = 40 contribution / 1 hour = 40
So we would assume lets produce A, right?
Except, A has other costs of 40, so profit per unit is 10 while B has 20 other costs so we are making 20 profit per item.
I would understand if we just used total cost - materials, but using sales price is totally twisted in my mind.
M
Muhammad·
May peace be upon you sir! How can we reduce total factory cost if they were fixed?
J
John MoffatTutor·
Fixed costs are only fixed in the sense that they do not change with the level of production. That does not mean that they can not be changed for other reasons - for example they might increase simply due to inflation, or we might be able to reduce them by using different suppliers.
B
Biseko·
Hello Sir,
If we have more than two products when allocating resources, say three products, do we allocate maximum resources (Based on demand) for product A and Product B and the remaining resources for Product c?
Thank you.
J
John MoffatTutor·
You allocate to the products in the order of their throughput returns per unit of the limited resource. The final product will get whatever resources are left over.
J
JojoBeat·
Hey Sir, how do we know which to use between throughput and contribution of the question doesn’t state?
J
John MoffatTutor·
If throughput accounting is required then the question will say so. If the question does not say so then it is normal key factor analysis.
H
Hermela·
thankyou sir as always. i dont get the cocept of taking labour and other variable cost as fixed cost? and why we dont calculate cost per factory for individuals? if one of the tpr is less than one and the others product greater than one in the same factory cant we say the factory is profitable?
J
John MoffatTutor·
As I do explain in the lecture, in practice all costs (apart from materials) are likely to be fixed in the short-term. Calculating the factory cost per individual would be of no use. We calculate the return per hour for each product and the cost per hour in the factory. It is relevant when there are a limited number of factory hours available so that we can decide which products should be made in order to maximise profits.
R
rexfordntumy·
please why is WIP valued at material cost in Throughput Accounting?
J
John MoffatTutor·
Because all other costs are assumed to be fixed.
R
rebyfor75·
,Thank you so much for these free lectures, notes, videos and MCQ's. This is my very first time to use them and hope I do well in the exam this December 2021.
J
Jatin·
Hello Sir! Can you please tell me why haven’t have we taken cost per factory hour for individual products (by dividing the total factory cost for a product by machine hours) instead of the whole costs and then find the T.A.R. for individual products?
Thank you in advance!??
J
John MoffatTutor·
It is because all of the products are being made in the same factory.
J
Jatin·
Thank you Sir!
J
John MoffatTutor·
You are welcome:-)
R
Raul·
Thank you so much for this full free course. Your lectures provide clear understanding of key concepts and explanation is very good with examples. The quality of the recorded lectures is absolutely brilliant! On top of that the notes and other resources are of the utmost help in preparing for exam. In short, this is the best/reliable available online study resource you can use for self-study as it covers all the topics. I am really grateful to you for providing it for free to everyone. Thanks a tonne!!
J
John MoffatTutor·
Thank you for your comment :-)
A
Asif·
Hail Sir John !
E
ellesouth16·
Hi Sir, Good day.
Regarding the cost per factory hour's, total factory cost, Is it safe to say the other term for factory cost is fixed cost then?
J
John MoffatTutor·
No. We are only concerned with costs in the factory (there could be other fixed costs as well which we are not interested in for these purposes). Also, it is simply that we assume that all costs apart from materials are fixed in the short-term - they will not all be fixed costs in the long-term.
E
Emmanuel Mashaya·
Hi there John , i appreciate your work so much
I am here to point out an error , i think in the lecture notes for Example 2 answers on Throughput Accounting
Units produced for Product B are supposed to be 8000 units not 10000 as depicted within the answers to the exercise
J
John MoffatTutor·
No - the answer is correct.
I guess that you are referring to the calculation of the total fixed costs. They are calculated on the budgeted demand. I explain the reasons for this in the lecture.
L
Llyd·
can any body please tell me how to solve this question
A manufacturing co decides which three mutually exclusive products to make in its factory on the basis of maximising the companies throughput Accounting ratio
current data for the products is shown in the table
Product X prod y Prod Z
selling price p u 60 40 20
direct material cost PU 40 10 60
Machine HRS pu 10 20 2.5
total Factory cost ( excluding dir materials are $150000 The company cannot make enough of any product to satisfy the external demand entirely as machine Hrs are restricted
wht is the objective of this question and how should i solve it
J
John MoffatTutor·
You must ask this kind of question in the Ask the Tutor Forum and not as a comment on a lecture.
I
Ibrahim·
Hello John sir,
How are you?
I hope you are great,
First of all thank you for your explanation and your appreciated time, I have a question its mainly related to throughput CM. And concerned to fixed manufacturing costs under throughput CM all manufacturing costs except direct material all consider as fixed costs and you have explained the reason for being DL as fixed but in case of other variable costs like electricity, water and maintenance for example what is the reason for being as fixed costs under throughput CM.
Thank you in advance.
J
John MoffatTutor·
You are correct in saying that in practice some costs might well remain variable - it is not an 'exact science'.
However, for the exam there is no argument - it is only materials that you consider as being variable.
I
Ibrahim·
Thank you sir thank you so much.
J
John MoffatTutor·
You are welcome :-)
I
Ibrahim·
Hello John sir,
How are you?
I hope you are great,
First of all thank you for your explanation and your appreciated time, I have a question its mainly related to throughput CM. And concerned to all manufacturing costs except direct material all consider as fixed costs and you have done the reason for being DL as fixed but in case of other variable costs like electricity, water and maintenance for example what is the reason for being as fixed costs under throughput CM.
Thank you in advance.
R
rosicm·
Hi John. Could you explain why when calculating profit using optimal production (20k units of A and 8k of B), we use fixed cost multiplied by 20k units of A and 10k units of B (and not 8k units)
Many thanks!
J
John MoffatTutor·
I do explain this in the lecture! It is because the budget will have been prepared using the budgeted production. Even though the actual production is different, the total fixed costs will not change by definition (the total is fixed whatever happens).
B
bella0710·
Ooh ok thank you
J
John MoffatTutor·
You are welcome :-)
U
Umar·
Hi John,
I'm sitting my PM exam in March 2020 and your lectures are awesome!
Quick question, the lecture and notes state the Throughput Accounting Ratio is worked out by dividing by return or cost by the factory hours, just to clarify does this change depending on what the bottle neck resource is?
Thanks
J
John MoffatTutor·
We calculate the return per hour based on the time in the bottleneck resource.
B
Brian·
Hi John,
I don't see any written solution/lecture video for Example 3 on Bottleneck Resource. Could you please let me know where solutions are provided?
Thanks.
J
John MoffatTutor·
Look at the contents page of the lecture notes and you will see that solutions are provided to all examples :-)
B
Brian·
Seen. Thanks
S
Saad·
Please tell me where is the solution of Example 3. Thanks in advance
N
nicole1996·
hi Sir,
Thank you for the well explained notes and lectures.
By any chance are you going to do a lecture video on example 3 of the bottleneck resources?
thanks.
J
John MoffatTutor·
Thank you for your comment.
I will record a video when I have the time, but until then there is a printed answer in the free lecture notes.
N
nicole1996·
Thank you very much found them.
J
John MoffatTutor·
Great :-)
S
santhiya05·
Hello, can I check where did you find them?
J
John MoffatTutor·
Try looking at the contents page :-)
X
xueran·
Good evening sir,
I have found out that I can draw a conclusion in solving the throughput and key factor analysis.
Step 1, Contribution/u or Throughput and then contribution/u/h or Return blablabla, so that I can judge which is the better/best option
Step 2, considering how many units of each product should be produced, and then the total contribution
Step 3, Work out and eliminate Fixed or "Fixed" costs, then the best profit
I suggest that your lecture is really helpful, really appreciate it!!!!????
BTW, Looking forward to the 'bottleneck section' since I have to check my answer.
Have a good weekend, sir
Lancelot Wang Xue-Ran from China
D
Darin·
Hi Sir,
Thank you for this well made lecture!
I was able to understand all the details regarding throughput accounting and Key factor Analysis.
I now only hope that you would also take some of your free time to make a lecture on Bottleneck resource to explain how u would approach the Example question given.
(A short 3-4 mins video would suffice, in which you run over how to do the example).
Thank you yet again for your generous work.
Regards,
Darin P. Stephen
J
John MoffatTutor·
I will record a lecture when I have the time. However, I guess you realise that there is an answer in the lecture notes? :-)
M
mo55·
Hi John,
I was going through an MCQ question on Throughput Account and came across a question, it was on the Through Put Accounting Ratio.
I wanted to calculate the total factory cost and came across an admin cost.
I Added the Labour cost, Fixed cost and the Admin cost and discovered later that the Admin cost is not supposed to be added tot he total factory cost.
I just wanted to confirm that admin cost should not be added to total factory cost.
J
John MoffatTutor·
Correct. It is only the costs in the factory - i.e. the production costs.
X
xueran·
Those like admin. costs and distribution costs are non-production costs personally suggest~
T
Tahir·
Excellent lecture .
Thanks sir!
J
John MoffatTutor·
Thank you for your comment :-)
L
Louise·
Good afternoon,
On the lecture notes in Chapter 5 there is a point called Bottleneck Resources, i see this was not discussed or mentioned at all in the lectures. how important is this for the exam?
J
John MoffatTutor·
It is relevant for the exam. There is no lecture at the moment, but the notes together with the example (and answer) should be clear enough.
S
Sina·
Hi dear john,
I’v watched your lecture completely and i got all of the topics and cases except the last calculation in your last lecture in throughput accounting
It says the ratio should be more than 1
But i couldnt understand its logic
If it was selling price per u divided by cost per u I could see the logic because selling price covers the costs and its 1 or more than 1 and its ok
But here is profit on costs and it says it should be more than one to cover the costs
I assumed that if the profit or return per hour is 0.5 and cost per hour hour is 2
Answer will be less than 1 but its ok
Because its profit/return and no selling price…
I think i misunderstood a part because it doesnt match with your lecture
I’ll be thankful if you help me in this way:)
J
John MoffatTutor·
But the throughput return is certainly not the profit - it is the selling price less the materials cost. This is the whole point of throughput accounting. The selling price less the materials cost needs to be more than the other costs (which are all assumed to be fixed under throughput accounting) for there to be a profit - so the TAPR needs to be more than 1.
I do suggest that you watch the lectures again :-)
S
Sina·
Thanks dear john,I got the point
J
John MoffatTutor·
You are welcome :-)
H
Hoang·
Thank you sir, you are my hero
J
John MoffatTutor·
You are welcome :-)
S
sallywason·
Hi John,
Will there be a bottleneck resource lecture video?
I see an Example 3, however no video to go with it?
I look forward to your reply :)
J
John MoffatTutor·
Maybe one day - when I have the time :-)
However the example in the notes (together with the answer in the notes) should make it clear.
If not then ask in the Ask the Tutor Forum.
A
alie2018·
Thanks John. If I may ask, what's the best course of action for products with TPAR <1? What are some of the challenges of using this approach. How can we make decisions in a TPA environment?
R
Rafeh·
Is there going to be a lecture on this ?
R
Rafeh·
Hello !
There is no lecture on bottleneck resource but it is there in the notes complete with an example. Is it not part of the syllabus anymore ?
Thanks a lot
Why did you have to exclude materials cost from the factory cost, when calculating cost per factory hour
In the Kaplan Exam Kit, at the throughput accounting exercises the answer says "if none of the processes are limited [i.e. bottleneck], then increasing demand would improve throughout." (Q59)
Can you please explain the logic behind?
And the second part was to analyze make or buy decision.
so, the first part of this task. Should it be calculated according to throughput accounting where Contribution is sales - materials?
thank you in advance!
Could you please explain the moment in the example 2 with other variable costs. It is a little it confusing because they call it variable costs and according to throughput accounting we assume that the only variable costs is materials. Could there be a situation when by meaning variable costs they really mean it is variable cost and we should bear it in mind. Or in the end it doesn't really matter for us when using throughput?
thank you in advance
A: 100 sales price, 50 material = 50 contribution / 1 hour = 50
B: 100 sales price, 60 material = 40 contribution / 1 hour = 40
So we would assume lets produce A, right?
Except, A has other costs of 40, so profit per unit is 10 while B has 20 other costs so we are making 20 profit per item.
I would understand if we just used total cost - materials, but using sales price is totally twisted in my mind.
If we have more than two products when allocating resources, say three products, do we allocate maximum resources (Based on demand) for product A and Product B and the remaining resources for Product c?
Thank you.
Thank you in advance!??
Regarding the cost per factory hour's, total factory cost, Is it safe to say the other term for factory cost is fixed cost then?
I am here to point out an error , i think in the lecture notes for Example 2 answers on Throughput Accounting
Units produced for Product B are supposed to be 8000 units not 10000 as depicted within the answers to the exercise
I guess that you are referring to the calculation of the total fixed costs. They are calculated on the budgeted demand. I explain the reasons for this in the lecture.
A manufacturing co decides which three mutually exclusive products to make in its factory on the basis of maximising the companies throughput Accounting ratio
current data for the products is shown in the table
Product X prod y Prod Z
selling price p u 60 40 20
direct material cost PU 40 10 60
Machine HRS pu 10 20 2.5
total Factory cost ( excluding dir materials are $150000 The company cannot make enough of any product to satisfy the external demand entirely as machine Hrs are restricted
wht is the objective of this question and how should i solve it
How are you?
I hope you are great,
First of all thank you for your explanation and your appreciated time, I have a question its mainly related to throughput CM. And concerned to fixed manufacturing costs under throughput CM all manufacturing costs except direct material all consider as fixed costs and you have explained the reason for being DL as fixed but in case of other variable costs like electricity, water and maintenance for example what is the reason for being as fixed costs under throughput CM.
Thank you in advance.
However, for the exam there is no argument - it is only materials that you consider as being variable.
How are you?
I hope you are great,
First of all thank you for your explanation and your appreciated time, I have a question its mainly related to throughput CM. And concerned to all manufacturing costs except direct material all consider as fixed costs and you have done the reason for being DL as fixed but in case of other variable costs like electricity, water and maintenance for example what is the reason for being as fixed costs under throughput CM.
Thank you in advance.
Many thanks!
I'm sitting my PM exam in March 2020 and your lectures are awesome!
Quick question, the lecture and notes state the Throughput Accounting Ratio is worked out by dividing by return or cost by the factory hours, just to clarify does this change depending on what the bottle neck resource is?
Thanks
I don't see any written solution/lecture video for Example 3 on Bottleneck Resource. Could you please let me know where solutions are provided?
Thanks.
Thank you for the well explained notes and lectures.
By any chance are you going to do a lecture video on example 3 of the bottleneck resources?
thanks.
I will record a video when I have the time, but until then there is a printed answer in the free lecture notes.
I have found out that I can draw a conclusion in solving the throughput and key factor analysis.
Step 1, Contribution/u or Throughput and then contribution/u/h or Return blablabla, so that I can judge which is the better/best option
Step 2, considering how many units of each product should be produced, and then the total contribution
Step 3, Work out and eliminate Fixed or "Fixed" costs, then the best profit
I suggest that your lecture is really helpful, really appreciate it!!!!????
BTW, Looking forward to the 'bottleneck section' since I have to check my answer.
Have a good weekend, sir
Lancelot Wang Xue-Ran from China
Thank you for this well made lecture!
I was able to understand all the details regarding throughput accounting and Key factor Analysis.
I now only hope that you would also take some of your free time to make a lecture on Bottleneck resource to explain how u would approach the Example question given.
(A short 3-4 mins video would suffice, in which you run over how to do the example).
Thank you yet again for your generous work.
Regards,
Darin P. Stephen
I was going through an MCQ question on Throughput Account and came across a question, it was on the Through Put Accounting Ratio.
I wanted to calculate the total factory cost and came across an admin cost.
I Added the Labour cost, Fixed cost and the Admin cost and discovered later that the Admin cost is not supposed to be added tot he total factory cost.
I just wanted to confirm that admin cost should not be added to total factory cost.
Thanks sir!
On the lecture notes in Chapter 5 there is a point called Bottleneck Resources, i see this was not discussed or mentioned at all in the lectures. how important is this for the exam?
I’v watched your lecture completely and i got all of the topics and cases except the last calculation in your last lecture in throughput accounting
It says the ratio should be more than 1
But i couldnt understand its logic
If it was selling price per u divided by cost per u I could see the logic because selling price covers the costs and its 1 or more than 1 and its ok
But here is profit on costs and it says it should be more than one to cover the costs
I assumed that if the profit or return per hour is 0.5 and cost per hour hour is 2
Answer will be less than 1 but its ok
Because its profit/return and no selling price…
I think i misunderstood a part because it doesnt match with your lecture
I’ll be thankful if you help me in this way:)
I do suggest that you watch the lectures again :-)
Will there be a bottleneck resource lecture video?
I see an Example 3, however no video to go with it?
I look forward to your reply :)
However the example in the notes (together with the answer in the notes) should make it clear.
If not then ask in the Ask the Tutor Forum.
There is no lecture on bottleneck resource but it is there in the notes complete with an example. Is it not part of the syllabus anymore ?