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hello sir, ive got a doubt on throughput accounting, in some questions i find out, both return per factory hour and cost per factory hour divided by the same bottle neck hours. can you please clear me out in this.
And also dont we include the rest of the vc after deducting the material cost in the factory overheads?
ie: december 2023 pre mock Q26. answer was,Step 1: find the direct material costs:810.6 – 70 = 740.6
Step 2: Find throughput contribution per hour
(2,700 – 740.6) / 0.75 = 2612.53
Step 3: find other factory costs per hour
(298,000 + 250,000) / 1,880 = 291.49
Step 4: find the throughput accounting ratio:
2,162.53 / 291.49 = 8.96 ( hope u have the question sir! )
What question are you referring to?
Return = Throughput is per unit/product time of bottleneck
Whilst cost = Total cost / time available of bottleneck (this depends whether this is total cost or cost per hr)There are three main ratios that are calculated:
(1) return per factory hour, (2) cost per factory hour and (3) the throughput accounting ratio.1. Return per factory hour = Throughput per unit / product time on bottleneck resource.
This return per factory hour needs to be calculated for each product.2. Cost per factory hour = Total factory costs / total time available on bottleneck resource.
The ‘total factory cost’ is simply the ‘operational expense’ of the organisation.
If the organisation was a service organisation, we would simply call it ‘total operational expense’ or something similar. The cost per factory hour is across the whole factory and therefore only needs to be calculated once.3. Throughput accounting ratio (TPAR) = Return per factory hour/cost per factory hour.
In any organisation, you would expect the throughput accounting ratio to be greater than 1. This means that the rate at which the organisation is generating cash from sales of this product is greater than the rate at which it is incurring costs. It follows on, then, that if the ratio is less than 1, this is not the case, and changes need to be made quickly.
thank you sir. Sir it was the pre dec mock 2023…So sir, other than material cost do we include all other cost uner factory cost in cost per factory hour?
sir, if so in the question in pre dec mock 2023, theyve asked the TPAR for proceedure A,
selling price- 2700 vc-810.6
max demand for A was 600
surgeon hours was the bottleneck of .75hrs3. $70 of the variable cost for each procedure includes the costs of sterilizing and maintaining the medical equipment and theatre after each procedure. The remaining variable cost is direct materials.
4. There are five members of staff employed by Thin Co. Each works a total of 1,880 hours each per annum. The total salaries are 298,000. The only other hospital costs (comparable to ‘factory costs’ in a traditional manufacturing environment) are general overheads, including the theatre rental costs, amounting to $250,000 per annum.
5. Maximum annual demand for A and B is 600 and 1,200 procedures respectively. Time spent by each of the five different staff members on each procedure is as follows:
sir but in the answer theyve not included the variable cost of 70 right? why is it sir?
Correct 8.96
Step 1: find the direct material costs:
810.6 – 70 = 740.6
Step 2: Find throughput contribution per hour
(2,700 – 740.6) / 0.75 = 2612.53
Step 3: find other factory costs per hour
(298,000 + 250,000) / 1,880 = 291.49
Step 4: find the throughput accounting ratio:
2,162.53 / 291.49 = 8.96
Procedure A
hours per procedure
Procedure B
hours per procedure
Advisor
0.8
0.8
Nurse
1.0
1.0
Anesthetist
0.7
1.1
Surgeon
0.75
1.25
Recovery specialist
0.65
0.85
Part hours are shown as decimals e.g. 0·24 hours =14·4 minutes (0·24 x 60)
Surgeon’s hours has been correctly identified as the bottleneck.
I haven’t even seen this question
I don’t work every question for every student!
You cannot expect me to work through the question from scratchi understand sir totally..just tell me sir, is there a specific reason that why they havent included the variable cost* plz sir!
It tells you quite clearly that the $70 of the variable cost for each procedure includes the costs of sterilizing and maintaining the medical equipment and theatre after each procedure. The remaining variable cost is direct materials.
Throughput is SR -MC (those that are direct mats)
soStep 1: find the direct material costs:
810.6 – 70 = 740.6
Step 2: Find throughput contribution per hour
(2,700 – 740.6) / 0.75 = 2612.53
Step 3: find other factory costs per hour
(298,000 + 250,000) / 1,880 = 291.49
Step 4: find the throughput accounting ratio:
2,162.53 / 291.49 = 8.96
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