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Product x. SP=40 Material cost=10 Direct labour per unit = 7. Total direct labour for the year is 50000hrs of labour time at 12/hr. Factory overheads are 2,920,000 per yr.
Machine time is bottleneck. Product x need 0.01hr of machine time per unit. Total machine hour availale is 4000hr
What is TPAR?In this question I’m clear about Throughput and Factory overhead. But not clear about the Direct labor cost.
From the given information, we can say that 400,000 units can be produced in year. ( so the labour cost will be 7*400,000 in the year)
But in the question it consider the Total budgeted hours. We should only pay for what we produced. Budgeted hours doesn’t mean we utilized all of this.
Please clarify my doubt.Product X will be only one of the products that they make.
There is no mention of any restriction on demand and so the business will want to produce as many as possible – the more they produce the more they will be able to sell.
Since the bottleneck is machine time, it is only the 4,000 hours of machine time available that is limiting production and therefore they will want to use it all.
That does not mean they will produce 400,000 units of Product X because they will be producing other products as well. How many units they actually produce of X is of no relevance when calculating the TPAR.
(I assume that you have watched my free lectures on throughput accounting?)
Yes sir, I’ve watched those. maybe i dont remember all of that. 2 months back i listened to it.
Sir, what is the probability of asking shadow price in the exams? is it a regular question?It is quite likely that something about the shadow price will be asked somewhere in the exam.
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Sir, is the correct TPAR ?
Throughput = 30 (SP 40 – Materials 10)
Bottleneck hrs 0.01Return: 3000
Operational Expenses = 8400 (7hrs*$12) / 0.01 (bottleneck hr)
Return/Operational Expense = 0.38
Not sure what to do about FC!
The throughput return is correct at 3,000 per hour.
The factor cost per hour is the total of the labour and factory overheads, divided by the number of machine hours.
Have you watched my free lectures on throughput accounting?
Also, rather than attempt questions that someone has posted here you it is vital that you have a Revision Kit from one of the ACCA Approved Publishers and that you are practicing all of the questions in the Kit.- Topics: 4
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Thank you, I have watched your videos. They are excellent. I do have the Kaplan exam kit and have been using it, but find it useful to engage on questions being posed by others, to embed learning. Took my exam today!
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