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Corrie has three products, x, y and z. The capacity of Corrie’s plant is restricted by process alpha. Process alpha is expected to be operational for eight hours per day and can manufacture 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 selling price 150 per unit, material cost 70 per unit and throughput contribution 80 per unit. Product y selling price 120 per unit, material cost 40 per unit and throughput contribution 80 per unit. Product z selling price 300 per unit, material cost 100 per unit and throughput contribution 200 per unit.
What is the efficiency of bottleneck process given the output achieved is 6000 units of x, 4500 units of y and 1200 units of z?
In the above question, what does the efficiency of bottleneck process mean and how is it calculated?
Question: A change in factory cost arose, giving a new figure for conversion costs per factory hour of 80000. What is the revised throughput accounting ratio for each product?
The way I calculated the number of hours per unit was 1 divided by 1200 units, but it seems incorrect.
How to approach this question and from where to start?
The efficiency of the process is the number of hours worth of production they achieved (in this case they would expect the production to have taken 10 hours per day) as a % of the number of hours available (in this case 8 hours per day).
The number of hours per unit for X is 1/1200. The throughput return for X is 150 – 70 = 80.
Therefore the throughput return per hour is 80/(1/1200) which is $96,000 as per the answer.
(Alternatively, if they are producing 1,200 per hour and the return is 80 per unit, the over an house they will get 1,200 x 80 = $96,000. It doesn’t matter which way you show it 🙂 )