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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 is 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 (to two decimal places)?
Sir in this question there is mention about two direct labour one on the basis of unit and another one is about labour in throughput assumtion we consider all cost except material cost is factory cost but in this question we dis not consider the material cost per unit in the factory cost calculation what is the reason behind this could explain sir
The consideration of costs in throughput accounting, the reason material costs are not included in the factory cost calculation is that throughput accounting focuses on t the throughput (sales revenue minus material costs) while treating all other costs (including direct labour and overheads) as fixed costs.
This approach helps in identifying the most profitable use of the bottleneck resource, which in this case is machine time.
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