- This topic has 3 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
Q 3.7
One of the products manufactured by a company is Product X, which sells for $40 per unit and has a material cost of $10 per unit and a direct labour cost of $7 per unit. The total direct labour budget for the year is 50,000 hours of labour time at a cost of $12 per hour. Factory overheads are $2,920,000 per year.The company is considering the introduction of a system of throughput accounting. It has identified that machine time as the bottleneck in production. Product X needs 0.01 hours of machine time per unit produced. The maximum capacity for machine time is 4,000 hours per year.
What is the throughput accounting ratio for Product X ?
A. 3.41
B. 2.80
C. 2.10
D. 1.90Answer is A and factory cost = $2,920,000 + (50,000 hrs x $12/hour) = $3,520,000
Could someone please explain to me why factory cost is NOT equal to $2,920,000 + (no. of units produced per year x labour cost per unit) = $2,920,000 + [ (4000hrs / 0.01 hrs of machine time per unit) x $7 labour cost per unit ] = $5,720,000
But you do not know how many units are being produced because X is only one of the products being produced.
All you know is that there is 50,000 hours of labour and that labour costs $12 per hour.
Oh I see. I thought that all the machine time was for producing Product X. Thank you Sir.
- You must be logged in to reply to this topic.