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I am working out BPP Pg 59 – Growler manufactures…
In short:
Process can be operated 8 hours a day
Hourly capacity is 500 units per hour
Selling price of each unit = €100
Material cost per unit = €40
Total daily factory costs = €144,000 excluding materials
Expected production = 3600 units per day.a) calculate total profit per day
b) calculate return per factory hour
c) calculate throughput accounting ratioWhen calculating the return per factory hour, I used the expected production of 3600 units per day, which works out to be 3600/8 hrs = 450 units per hour. the answer in the book uses the hourly capacity of 500 units per hour. Shouldn’t the 450 units be used, since the 500 units actually creates an inventory? And if so, doesn’t this go against the principles of through put accounting?
Thanks for your help and your awesome lectures 🙂
I assume that this is on pager 59 of the Study Text, in which case it is difficult for me to help because I do not have the Study Text – only the Revision Kit (and it is not on page 59 of the Revision Kit).
If the product mentioned is the only product produced in the process then throughput accounting would not really be relevant since it applies when there is limited time available.
I can only assume that this is just one of the products being produced by the process, in which case the return per hour is relevant.Yes this is from the study text, although I wrote all the information above. My query is why does the answer use the hourly capacity to work out the return instead of the actual output?
the answer in the book is done in this way:
Return per factory hour = sales – direct material cost / usage of bottleneck resource in hours
(100 – 40) / (1/500)
= €30,000My workings for this were:
(100 – 40) x 3600 units = €27,000Can you help please?
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