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Activity 3 from BPP textbook , Through put accounting
Why was the marketing and administration cost not included in Total factory cost ?
Here, cost per factory hour , It is actually cost per factory week not Hours if i see it from solution.
It simply, added labour and var. O/h 5500 and 8000 per week and also added ( 450,000 per year/ 48 weeks ), Return per Factory hour is correct , I calculated it by dividing the total hours per week by Total bottelneck output
= 40 hrs per week / 30 trollies = 1.333333 hour for each trolley.
And 1400/1.3333 = 1050 which is correct according to book.But the Cost per factory hour doesnt make sense !
Okay, The only thing i didn’t understood is why the marketing and administration cost were excluded , If i remove these costs , My answers are Fine !
Its these little thing which Just Get the whole 6 number answer wrong.I do not have the BPP Study Text (only the Revision Kit) and so I cannot help you.
In calculating the factory cost it should only include all costs within the factory (as I explain in my free lectures on this).
If you are watching our free lectures then you do not really need the Study Text. The lectures are a complete free course and cover everything needed to be able to pass the exam well.
The essential book (however you choose to study) is the Revision Kit because it is full of past exam and other exam-standard questions for practice. Question practice is vital for passing the exam.
Yeah, I watched all Lectures twice , I thought I may also go through the study text book, Which i bought but didn’t touch last time.
I guess it better to start solving the Exam kit insted of wasting time in study text, it takes repeated Reading to understand. Whats going on in text book.I agree with you – it is more important to start working through the Revision Kit 🙂
How should the operating cost dealt with in Throughput accounting / leaner programming (Limited factors)
Like if Its give in question that Operating cost is X. And it includes direct labour cost of 10,880. Will the whole Operating cost considered Factor cost ?
I should have started new topic for this one.
In a question, Operating costs were deducted as fixed cost from Total Throughput to calculate Total Profit.
Question:
The statement given was : machine time is bottleneck resource and maximum capacity is 4,000 machine hours per week. operating cost including direct labour costs are 10880 per week. Direct labour workers are not paid overtime and work standard 38 hour per week.For product A , B , C
S.P – 2.8 1.6. And 2.4Material cost – 1.2 0.6 2.4
Direct labour cost – 1.0 0.8 and 0.8
demand is – 4,000 4000 5000 units
Machine hrs – .5 hrs 0.2 hrs 0.3 hrs
Determine optimum production plan and Profit.
———-
I tried but I couldn’t find the fixed costs directly as Machine Hour costs weren’t given in cost card.And total labour costs = 3400*1 + 4000*0.8 + 0.8*5000 = 10,600
and as the statement says operating costs 10,880 includes direct labour. I confuses me what 280 usd is about.
Are you sure that you have typed the question correctly. because if C has a selling price of $2.40 and a material cost of $2.40 then C is not worth making!
Also I have no idea what $280 you are referring to.
Yeah wrote incorrect, the material for C is 1.2. , I. Checked all other information is Correct.
Its written the question that Operating costs include direct labour costs are 10,880 usd.
So, If i calculate the Direct labour cost =
B ( Rank 1 ) = 4000u * 0.8 = 3200
C ( R 2 ) = 5000u * 0.8 = 4000
A ( R 3) = 3400u * 1 = 3400Total direct cost is 4000+4000+2720 = 10,600
Operating cost given Is = 10,880
10,880-10,600 = 280 ,
And Its Throughput accounting we are using.
As i said earlier, In solution the operating cost is treated as fixed costs and Reduced from total throughput to Get to the profit.
But we know Operating costs includes COSG which is Op. inv + purchase – closing inventory. Here there is no opening and closing inventory but We have material cost as Cost. Right ?
Thats What’s I didn’t get , If Operating cost includes The material cost inform of COGS , Why we considered it as fixed. And
Also, There is cost per unit is not given for machine hours, So how can i possibly Calculate the Total Fixed costs ( Excluding materials )Either : Labour cost + machine cost
OR Operating cost – Material costAre the ways supposed to be to calculate Fixed costs.
I hope I didn’t mixed All that ?
The projects are ranked according to their throughput return.
Therefore the total throughput contribution is (4,000 x $1.60) + (5,000 x $1.20) + (3,400 x $1) = $15,800.
This is the total revenue less materials cost.
To get the profit we take the throughput contribution and subtract the fixed costs (which are all factory costs apart from the materials) and from the question it seems they are $10,880, which would result in a profit of 15,800 – 10,880 = $4,920.
This is of course assuming that the question did require throughput accounting and was not therefore normal limited factor analysis. Were it limiting factor analysis (key factor analysis) the the ranking would have been based on the contribution (selling price less materials and less labour) and the fixed costs would then exclude the labour (which would explain the $280).
I really cannot explain more without seeing the Study Text which I do not have.
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