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Hello Sir,
In Dec 2013 Exam q 2
Why we did not multiply the available time by 3 since we have three machines M,C,and A
we used only 2700 hours of the bottleneck ,
Thanks for help,
All the machines are working at the same time – there is 2700 hours available for each of them.
hi john i was going through a certain example in the bpp text which i couldnt understand
the qn is :A company manufactures a single product, which is processed in turn through three machines, Machine type A, Machine type B and Machine type C. The current maximum output capacity per week on the existing machinery is as follows:
Machine type A: 1,800 units
Machine type B: 1,600 units
Machine type C: 1,500 units.The company could purchase an additional machine type C for $8 million which would increase output capacity on Machines C by 600 units per week. It could also purchase an additional Machine type B that would cost $5 million and increase output capacity by 300 units per week.
An increase in weekly output capacity is worth (in present value terms) $50,000 per unit of additional output.What should the company do? Should it buy either or both of the additional machines?
solution was follows:
(1) The current bottleneck resource is Machine Type C and output is restricted to 1,500 units per week. There is no point in buying an additional Machine Type B unless a new Machine type C is purchased first, to elevate the bottleneck resource.
If an additional Machine Type C is purchased, output capacity will increase as follows:Machine type A: 1,800 units
Machine type B: 1,600 units
Machine type C: 2,100 unitsBy elevating the capacity of Machine type C, Machine type C is no longer the bottleneck resource. The new bottleneck resource is Machine type B and output is restricted to 1,600 units per week, which is 100 units per week more than the current output limit.
The benefit will be (100 units × $50,000) – $8 million = –$3,000,000 (= net loss).
(2) If an additional Machine Type C and an additional Machine type B are purchased, output capacity will increase as follows:
Machine type A: 1,800 units
Machine type B: 1,900 units
Machine type C: 2,100 unitsThe new bottleneck resource is Machine Type A and output is restricted to 1,800 units per week, which is 300 units more than the current limit.
The benefit will be (300 units × $50,000) – $8 million – $5 million = + $2,000,000.
Conclusion. By purchasing an additional Machine type C and Machine type B output would be increased by 300 units per week. The new bottleneck constraint would be Machine type A. The company would benefit from this by $2,000,000.
in part (2) of the answer it said ” The new bottleneck resource is Machine Type A and output is restricted to 1,800 units per week, which is 300 units more than the current limit..” from where did it get this 300 units from? can you please explain this
also, the qn says the company produces a single product which is processed in turn in 3 machines ie A, B and C, This means the product is processed through 3 machines before it can be complete. but the answer in solution part (1) says “There is no point in buying an additional Machine Type B unless a new Machine type C is purchased first, to elevate the bottleneck resource.” it doesnt seem to make sense to me, that how can your production in machine C be greater than B and A? isnt the product going through a series of processes ie one machine after the other?
can you please explain this question properly sir….i went through your lectures and notes but couldnt solve this problem
another question :
In a JIT environment, all inventory is a ‘bad thing’ and the ideal inventory level is zero. Products should not be made unless a customer has ordered them. When goods are made, the factory effectively operates at the rate of the slowest process, and there will be unavoidable idle capacity in other operations.
Work in progress should be valued at material cost only until the output is eventually sold, so that no value will be added and no profit earned until the sale takes place. Working on output just to add to work in progress or finished goods inventory creates no profit, and so should not be encouraged.
please explain these 2 concepts on throughput accounting.
i hope to hear from you john
thanks again,
mikeYour first question:
At the moment the maximum production is 1,500 units (because it is limited by Machine C).
If they buy an extra B and an extra C, then the new maximum production will be 1,800 (because it is limited by Machine A).
The difference is 300 units.
The production is passing through three machines, but it is the slowest machine than limits how many the other machines are able to process.
At the moment, C can only process 1500 units, and so although the other machines can process more, there is no point because they have to go as slow as C.Your second question:
Both statements are really making the same point. There is no point in incurring costs producing goods unless you are going to be able to sell them.
If you don’t sell them then they become inventory and so there is no point in incurring costs just to have the goods sat in inventory.Ideally, you should only make goods (and therefore only incur costs) when you know you will be able to sell them.
(What you have quoted is terribly badly worded and also is not all completely relevant to the current exam – I think they have left it in the study text from a few years ago when something called backlash accounting was in the syllabus (and then it was more relevant). It was removed from the syllabus a few years ago and so is now not relevant at all 🙂 )
thank you john for you response. i dont get you what you mean by saying “(What you have quoted is terribly badly worded ” what part are you reffering to?
and referring to my second qn i still dont get the part of ” When goods are made, the factory effectively operates at the rate of the slowest process, and there will be unavoidable idle capacity in other operations.” in the first paragraph.
have you covered on “how a business can improve throughput accouting ratio” i dont see this in your lecture and notes
Hi Mr John ,
for the first question,
in other questions like JUN 2009 Q1 there were 50 production lines ,why here we multiply by 50 and there we dont,
Thanks,
50 production lines does not mean that there were 50 machines in the process.
There are only 3 machines in the process, but there are 50 sets of then.So in total we needed to multiply by 50 to get the total time being worked.
Also, to avoid there being any confusion, the examiner actually said in the question how much factory time there was.
@mike0943 said:
thank you john for you response. i dont get you what you mean by saying “(What you have quoted is terribly badly worded ” what part are you reffering to?and referring to my second qn i still dont get the part of ” When goods are made, the factory effectively operates at the rate of the slowest process, and there will be unavoidable idle capacity in other operations.” in the first paragraph.
hi john i am waiting for your reply on this post and the one after it
Hello MR John,
So we have to divide the total factory cost by the bottleneck available hrs or the total hours available we have to be very clear here,
Thanks for help,
The bit that is badly worded is the bit about work in progress being valued at material cost only. This relates more to backflush accounting which is no longer in the syllabus.
Suppose there are two processes – one after the other.
The first is capable of producing 100 units an hour, the second is capable of dealing with 200 units an hour.The first is the slowest process and therefore the second process only receives 100 units an hour. Even though they can work much faster, if they are only receiving 100 units then they can only work on 100 units (and therefore have spare time (idle time) )
(I do explain this at the end of the lecture)No – I do not cover how to improve the throughput accounting ratio, but the answer should be fairly obvious.
Either increase selling price, or reduce costs, or produce faster.thank you john once again.
its quite strange that bpp has mentioned it while its not part of the syllabus…..their text is only complicating things…
i went through your CVP analysis lecture and notes and what i can say is its the best and most simplified and it seems it covers everything as per the acca syllabus…compared to bpp i fell half asleep reading it…i guess i will use your lectures and notes for f5.but can you recommend for which topics we need to have some further knowledge/reading by referring to the studytext?
I think that they have probably not changed their answer since the times when backflush accounting was in the syllabus – nobody is perfect (both BPP and Kaplan have several mistakes in their revision kits as you will see if you look at the errata sheets on their websites.)
Thanks you for your comments on the CVP lectures.
With regard to further topics from the Study Text, I can’t really recommend anything specific. What I would suggest is that you watch the lecture and practice all the questions in whichever Revision Kit you have. The way to use the Study Text is if you come across something in the lectures that you do not really understand, or if you come across a question in your Revision Kit that you do not understand (or more importantly do not understand the answer 🙂 ) then either look in the Study Text or (better) ask me in this forum.
If you have lots and lots of time, then read every page of the Study Text, but for most people this is just not realistic and is not necessary!
ok i will refer to the text whenever i am stuck in the revision kit questions. but i really prefer your lectures and notes to act as my reference instead…BPP is just complicating things
i dont have lots of time as am also planning to start f8 and 9. i hope i can do the same for f9 and use your lectures and notes and avoid the hefty bpp text…
can you advice me whether i can do f8 and f9 aswell in the time available for the dec session?
I don’t know how much time you have available for studying, but you should certainly be able to prepare for both papers by December.
thanks john…i will try covering the syllabus by taking 2-3 for each of them using your lectures and notes, then do the revision kit
i hope i ace them all 🙂
I hope you do also 🙂
Do ask in this forum if you have any problems while you are studying.
yes i will john…thanks again for all your support ….i just hope that 2-3 days is enough for each of them to cover the syllabus and then i will start the revision kit. again i want to avoid the text.so i just hope your lectures and notes and the revision kit is the complete solution for me to ace in this papers
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