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Hi John,
I am going using the revision kit to practice exams questions and I came across one that I just don’t understand.
The question is a s follows:
Corrie produces 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 produce 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 SP/unit Mat cost/unit Throughput/unit
x 150 70 80
y 120 40 80
z 300 100 200Conversion costs are 720,000 per day
A change in factory cost arose, giving a new figure for conversion costs per factory hour of 80,0000. Calculate the revised TA ratio for each product.
I get that the TA ratio is return per factory hr over total cost per factory hr.
The answer that they gave is
Product Throughput contr per factory hr Cost per factory hr TA ratio
x $80x(60/0.05mins)= $96,000 80,0000 1.2
y $80x(60/0.04mins)= $120,000 80,0000 1.5
z $200x(60/0.04mins)= $120,000 80,0000 1.5What I don’t get is what is going on with the Throughput cont per factory hr.
Can you help explain it to me please?
Thanks so much!
-Laoise
I do assume that you have watched my free lectures on throughput accounting (the lectures are a complete free course and cover everything needed to be able to pass the exam well).
For product X, the throughput return is 150 – 27 = 80.
Since they can produce 1,200 units per hour, the time per unit = 1/1200 = 0.00083333 hours.Therefore the return per factory hour = 80 / 0.00083333 = 96,000
Therefore the throughput accounting ratio = 96,000/80,000 = 1.2
It is the same logic for Y and for Z.
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