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Hello sir,
I’ve come across a small doubt in calculation part of the question below. Please help me in it!.
Q: Corrie (BPP exam kit)
Corrie produces three products X,Y,Z. The capacity of Corries plant is restricted by process alpha. Process alpha is expected to be operational for 8 hrs 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. X. Y. Z
Selling price p.u 150. 120. 300
Material cost pu. 70. 40. 100
Throughtput
Contribution pu. 80. 80. 200
Conversion costs are 720,000 per day.
A change in factory cost arose, giving a new figure for conversion costs per factory hour of 80,000. What is the revised TPAR RATIO for each product?
Solution: throughput contribution per factory hour is calculated as:
X: 80 * (60/0.05mins)= 96000
But I don’t understand why throughput per factory hour is calculated this way.
Shouldn’t we divide throughput pu and factory hour pu?
So then it must have been like 80/(0.05/60)
Sir, please help me in finding out the reason of it being calculated as in the solution.
Thanks in advance!You can get the same figure in several ways.
Given that they can produce 1,200 units per hour, the time per unit is 1/1,200 hours.
Therefore the contribution per hour is 80 / (1/1,200) = $96,000Alternatively (as BPP have done it), if they can produce 1,200 units per hour and if each unit gives a contribution of $80, then the contribution per hour is 1,200 x $80 = $96,000.
What you have written is also fine. Each units takes 0.05 minutes, and therefore the contribution per hour is 80/(0.05/60), which is also equal to $96,000.
It doesn’t matter which way you get the figure – whichever you find the easiest – but the final answer is the same whichever way.
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