Throughput question

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November 11, 2021 at 10:15 am #640418
Joseph.Andrews
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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——-Production rate per machine hour (units)
—–W——————————–200
—–X———————————500
—–Y———————————400
—–Z———————————350

Selling Price per unit—-Material cost per unit—–Conversion cost per unit
———-$350————————–$120—————————-$40
———-$190————————–$95——————————$25
———-$270————————–$160—————————-$20
———-$215————————–$75——————————$35

If the company is not able to increase the availability of machine C’s
operational hours, what is the production ranking of product Y?

Options:
A. First
B. Second
C. Third
D. Forth

The correct answer is D (fourth)

According to my answer product Y ranking is Third.

Throughtput per machine hour is as follows :
W = $230 / 5 = $46
X = $95 / 5 = $19
Y = $110 / 5 = $22
Z = $140 / 5 = $28

Please correct me If I am wrong….
November 11, 2021 at 4:09 pm #640436
John Moffat
Keymaster
- Topics: 57
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You are wrong.

If they can produce W at the rate of 200 units every hour, then the throughput per machine hour is 200 x $230 = $46,000.

It is similar workings for each of the other three products.
November 12, 2021 at 8:19 am #640461
Joseph.Andrews
- Topics: 45
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Sir, we always prioritize our ranking based on throughput cost per machine hour but here we are calculating it on total figures of throughput per machine hour.

Is it because every product is making a different number of units that changes the total throughput costs figures?
November 12, 2021 at 5:37 pm #640489
John Moffat
Keymaster
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The rankings are always based on the throughput return per hour.

If you do not like the workings I wrote before then the alternative (which is more common but here takes a bit longer) is to say that the time taken to produce 1 unit of W is 1/200 hours.
The throughput return per unit of W is $230.
Therefore the throughput return per hour is 230 / (1/200) = $46,000.

Do watch my free lectures again on throughput accounting.
November 16, 2021 at 9:57 am #640771
Joseph.Andrews
- Topics: 45
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Sorry to ask again but I was confused…

200 units of product W is to be produced while all the fours products (W, X, Y, Z) takes 5 hours a day.

Therefore, every unit of W takes 0.025 hours per unit and so on.

Product————————W————X————Y—————Z
Throughput cost————230———-95———110————140
Machine hour / unit——-0.025——-0.01——0.0125——–0.01429
Throughput per hour—–9200——-9500——–8800———–9800
Ranking————————3————-2————4—————1

We should make Product Y in fourth ranking

Is this correct because this is what you did in your lecture???

Thanks for your time 🙂
November 16, 2021 at 4:10 pm #640807
John Moffat
Keymaster
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Nowhere does it say that the products take 5 hours a day to produce.

What you have done is certainly not what I do in my lectures!!!

As I wrote before, the time to produce 1 unit of W is 1/200 hours (or, if you prefer, 0.005 hours).

Therefore the throughput return per hour is 230 / 0.005 = $46,000.

This is exactly what I do in my lectures and the products are ranked according to the throughput return per hour.
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