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- This topic has 3 replies, 2 voices, and was last updated 2 years ago by John Moffat.

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- November 26, 2021 at 9:47 am #641683
A manufacturing company uses machine C, which is operational for five hours a day to manufacture four products: W, X, Y and Z. Factory costs are $150,000 per day.

The company uses throughput accounting and its objective is to maximize profits.

Information relating to these products is as follows:

Products——————————–W——–X——–Y——–Z

Production rate/machine hrs—–200——500—-400—–350

Selling price per unit ($)———–350——190—-270—–215

Material cost per unit ($)———-120——-95—–160——75

Conversion cost per unit ($)——-40——-25——20——-35If the company is not able to increase the availability of machine C’s

operational hours, what is the production ranking of product Y?A. First

B. Second

C. Third

D. Forth[My answer]

The company uses machine C which is operational for 5 hours a day to make four products W, X, Y, Z. So every product is taking 5 hours to produce the products.Products———————————–W———X———-Y———-X

Production units————————200——-500——400——-350

Total Throughput cost ($)———-46000—-47500—44000—-49000

Total Machine hours—————–1000——2500—–2000—–1750

Throughput cost / machine hours–46———19——–22———28

Ranking———————————-1st———4th——-3rd——–2ndAccording to my answer product Y should be made 3rd in ranking but the correct answer is D (4th).

Please explain why my answer is not correct???

November 26, 2021 at 3:54 pm #641709It is not how many they produce that matters, it is the speed at which they produce.

The throughout return for W is 350 – 40 = $280.

They can produce at the rate of 200 per hour, and so the throughput return per hour is 200 x $280 = $56,000.

(Or, if you prefer, the time to produce 1 units is 1/200 hours, and therefore the throughput return is 280 / (1/200) = $56,000.It is the same workings for each other the other products.

Have you watched my free lectures on throughput accounting?

November 26, 2021 at 4:43 pm #641723Sir, you have deducted the conversion cost from the selling price instead of material cost to get the throughput return for W. It should be this way 350 – 120 = $230

The company produced 200 units for W, therefore the throughput return is 200 x $230 = $46,000. (which I correctly calculated in my answer above)

Since the machine is used for 5 hours a day, we need to calculate the total hours taken by W as 200 x 5 hrs = 1000

Therefore, the throughput return per hour for W is calculated as ($46000 / 1000 hrs) = $46

The same goes for the other products. (Is that correct?)

November 27, 2021 at 8:31 am #641762Sorry, my mistake – you are correct that I should have subtracted the material cost.

The fact that the machine is used for 5 hours a day is not relevant. To get the throughput return per hour we need to divide the throughput contribution per unit by the time taken per unit (as I explain in my lectures on this).

We is capable of producing 200 units per hour, and therefore the throughput return per hours is 200 x $230 = $46,000. That is the return per hour – we do not multiply that by anything.

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