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Could you explain how:
1.An increase in the speed of the fastest machine in the production process does not lead to an increase in the TAR?2. A 5% wage increase linked to an 8% improvement in productivity leads to an increase in the TAR?(According to me, 5% increase in wage is an additional cost, so how this could lead to an increase in the TAR)
1. The fastest machine will still be the bottleneck. The cost per factory hour will not change. The return per factory hour from the particular product will only increase if the time per unit for this product reduces (which is not necessarily going to be the case just because the machine itself is faster).
2. The 5% wage increase on its own is an extra factory costs and will therefore increase the factory cost per hour which reduces the TAR. However, since the 8% increase in productivity (which decreases the factory cost per hour) is more than 5%, the net of the two could lead to an increase in the TAR.
Units produced 1,150
units sold 800
materials purchased 900 kg costing $13,00
opening inventory used 450 kg costing $7,250
Labour costs $6,900
Overheads $4,650
Sales price $35There was no opening of finished goods or closing inventory of materials
What is the TAR?
The answer is 1.30-How to deal with opening inventory used?
-How to obtain the answer?There is not enough information given. You need to know how many machine hours are available and how many machine hours per unit.
Throughput accounting is only relevant when there is limited machine time available.This question is actually from the kaplan revision kit….I have copied exactly the question as it is…..The answer is also available as well as the workings but I have some difficulties in understanding the logic behind
*concerning the material purchased I have made a mistake; it’s 900 kg at$13,000
Sorry, but even if it is in the Kaplan book then it is impossible without more information.
(I only have the BPP Revision Kit and so I cannot look at it)
Sorry, but even if it is in the Kaplan book then it is impossible without more information.
(I only have the BPP Revision Kit and so I cannot look at it)
Dear sir,
Could you explain what is meant by “calculate the throughput per unit of the bottleneck resource for each product” and if possible, can you link it your example in the your notes?(which figure is the throughput per unit of the bottleneck resource)Thanks in advance.
The unit of bottleneck resource is hours.
So what they want is the throughput per hour (which is the same as the return per factory hour).
S Limited has two processes.
Process P: Each machine produces 6 units an hour and S has 8 machines working at 90% capacity.
Process Q: Each machine produces 9 units and S has 6 machines working at 85% capacity.
One of S products is Cloud. Cloud is not particularly popular but does sell at a selling price of $20 although discounts of 15% are usual. Material costs are $5 and direct labor costs are double the material cost. Cloud spends 2 hours in process P but 3 hours in process Q.
What is Cloud’s TP per hr in its bottleneck process?
-The answer is $6.00
-Could you explain what does “90% capacity” mean and how to deal with it?
-How to obtain the answer?2.There is actually a long question but I am having some difficulty to understand part of it; so it is as follows:
Production takes 5 days per week, from 7 am until 8pm, 50 weeks per year.Each panel has to be cut, moulded and then then assembled using machine(Machine C), a moulding (machine M) and an assembly(Machine A)
Out of the 13 hrs for production each day, workers take one hour lunch break. For the remaining 12 hrs, Machine C is utilised 85% of the time and Machine M and A are utilised 90% of the time. Machine M is identified as a bottleneck resource. Fixed Cost is $12,000,000
-What does “utilised 85% of the time” mean and how to deal with it?
-How to calculate the cost per factory hour?( in the workings, it is calculated as 12,000,000/(12 x 5 x 50 x 90%)-Could you explain the logic being (12 x 5 x 50 x 90%)?
Thanks in advance.
1. The fastest machine will still be the bottleneck. The cost per factory hour will not change.
Sir, I have read this in your reply. It must be a mistake, you meant the slowest machine.Am I right?
First question:
90% capacity means that it is only working 90% of the hours that it could work.
So at the moment is is producing 8 x 6 unit = 48 units. But it is capable of producing 48/90% = 53.33 units.Second question:
Utilised 95% of the time means used 95% of the time.
Third question:
If they are used 90% of the time, the the total time is 12 hours x 5 days x 50 weeks x 90%
Concerning question 1, the answer in the book(Kaplan) is:
-“Process P output is 6 × 8 × 0.9 = 43.2 per hour. Process Q output is 9 × 6 × 0.85 = 45.9 per.Process P is the slowest so it is the bottleneck”.-How can process P be the bottleneck? In fact, process P is taking the less time in than in Process Q. The process which is taking more time is considered as a bottleneck, so how can it be a bottleneck?. Could you please clarify?
Thanks.
If Q can produce 45.9 units per hour, but P can only produce 43.2 units per hour, then P is producing more slowly and is therefore the bottleneck.
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