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hello Mr john, hope you are doing well.
i went through your lectures (with examples) on throughout accounting i clearly understand everything but there is a question where i am having a problem.a) determine the quantities of each product that should be manufactured and sold each week to maximise profit and calculate the weekly profit.
for this part of the question i did how you explained in the lecture by finding contribution per machine hr of each product then ranked then calculated the production of each product but where i got stuck was when calculating weekly profit because of this information in the question.
except the cost cards this extra information is given
“Machine time is a bottleneck resource and the maximum capacity is 400 machine hours each week. Operating costs,including direct labour costs, are $5440 each week.direct labour costs are $12 per hour and direct labour workers are paid for a 38-hour week,with no overtime”
Now i don’t know what would be the fixed costs when i want to deduct them from the total contribution to calculate profit.
38*12= 456 i thought of deducting it from the total operating costs (5440) bcz here direct labour is not a fixed cost as using normal method (where labour is variable unlike throughput approach)
i dont know if this is correct??help pls so that i can clear this doubt
its not mentioned how many workers are there so how would i calculate the number of workers
If it is throughput accounting, then all $5,440 is the factory cost and will be subtracted from the throughput contribution.
If it is conventional contribution analysis, then labour is a variable cost (which therefore reduced the contribution per unit) and the fixed costs are 5,440 less the 456 for each of the workers and you would need to know how many workers there are. If it is throughput accounting, then that is irrelevant.
Yes I understood,
But in the question the number of workers are not given so can I calculate the no. Of workers by dividing bottleneck 400 hours diving by 38 will that make sense to get the no.of workers?
Bcz it says direct labour workers are paid for 38 hour period?Since it is throughput accounting, you do not need to know the labour cost – it is included in the $5,440 and so this is the factory cost.
(And anyway, just because the machines in the bottleneck are working 400 hours does not mean the workers throughout the factory are working 400 hours!!!)
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