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    PM Sect B Test 6

    Uploaded by

    FarahAin Fain
    The document provides information about the production of two products (P1 and P2) by a company using two machines (M1 and M2). It includes the unit details of each product including selling price, material costs, variable and fixed production costs. It also provides the machine time needed to produce one unit of each product on each machine. It asks several questions related to identifying the bottleneck machine, calculating costs per factory hour, throughput accounting ratios, and optimizing production based on bottleneck capacity.

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    PM Sect B Test 6

    Uploaded by

    FarahAin Fain
    440 views5 pages
    The document provides information about the production of two products (P1 and P2) by a company using two machines (M1 and M2). It includes the unit details of each product including selling price, material costs, variable and fixed production costs. It also provides the machine time needed to produce one unit of each product on each machine. It asks several questions related to identifying the bottleneck machine, calculating costs per factory hour, throughput accounting ratios, and optimizing production based on bottleneck capacity.

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    The document provides information about the production of two products (P1 and P2) by a company using two machines (M1 and M2). It includes the unit details of each product including selling price, material costs, variable and fixed production costs. It also provides the machine time needed to produce one unit of each product on each machine. It asks several questions related to identifying the bottleneck machine, calculating costs per factory hour, throughput accounting ratios, and optimizing production based on bottleneck capacity.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    440 views5 pages

    PM Sect B Test 6

    Uploaded by

    FarahAin Fain
    The document provides information about the production of two products (P1 and P2) by a company using two machines (M1 and M2). It includes the unit details of each product including selling price, material costs, variable and fixed production costs. It also provides the machine time needed to produce one unit of each product on each machine. It asks several questions related to identifying the bottleneck machine, calculating costs per factory hour, throughput accounting ratios, and optimizing production based on bottleneck capacity.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 5

    PM-G11-SEPTEMBER 2023-TEST 6

    The following scenario relates to questions 1 – 5.


    Two of the products that are manufactured by a company use the same machines. The products (P1 and P2) are
    manufactured using two machines (M1 and M2). The market is saturated and highly price competitive. During
    the next period the time available on the machines are 176 hours for M1 and 195 hours for M2.

    The company uses throughput accounting.

    Unit details of the two products are:


    P1 P2
    $ $
    Selling price 32.20 39·00
    Materials 14·20 13.00
    Total variable production costs for the period excluding direct material costs estimated to be
    $3,150.
    Total fixed production overhead for the period estimated to be $1,140.

    The machine time needed to make one unit of the products is:
    P1 P2
    M1 0·44 hours 0·40 hours
    M2 0·60 hours 0·65 hours

    Question 1
    Using appropriate calculation identify the bottleneck machine hours.
    A. Machine M1
    B. Machine M2
    C. Machine M1 and M2
    D. No bottleneck at all

    Question 2
    Calculate the cost per factory hour.
    A. $22.00
    B. $16.15
    C. $5.85
    D. $24.38

    Question 3
    Calculate the throughput accounting ratio for product P2.

    A. 1.96
    B. 1.90
    C. 1.82
    D. 1.09

    Question 4
    The company wish to maximise profit for the period by optimising the capacity of bottleneck machine. State
    whether the following statements are correct or wrong in terms of bottleneck resource utilisation?

    1. Bottleneck machine capacity must be fully utilised by the optimum production plan.
    2. Bottleneck machine capacity should be allocated to product in the order of highest to lowest
    throughput contribution per bottleneck machine hour.
    3. The company should only produce product P1 to maximise profit.
    4. The company should only produce product P2 to maximise profit.
    5. The company should produce P1 and P2 to maximise profit.

    Statement Correct Wrong


    1 Ο Ο
    2 Ο Ο
    3 Ο Ο
    4 Ο Ο
    5 Ο Ο

    Question 5
    Which of the following statements are true about TPAR of product P1 and P2?

    (1) Increase the time spent by the bottleneck activity on each service.
    (2) Identify ways to reduce the material costs for the services.
    (3) Increase the level of inventory to prevent stock-outs.
    (4) Increase the productivity of the stage prior to the bottleneck
    (5) Identify and remove non-value adding activities in the factory.
    (6) Increase to the selling price of the products.

    The following scenario relates to questions 6 – 10.


    A company produces three types of products A, B and C.
    A B C
    Budgeted production and sales (units) 8,000 10,000 6,000
    Selling price per unit ($) 130 100 135
    Material cost per unit ($) 33 20 40
    Labour cost per unit ($) 30 24 36
    Variable overhead cost per unit ($) 25 20 30
    Fixed overhead cost per unit ($) 15 12 18
    Machine hours/unit 0.25 0.2 0.3
    Labour hours per unit 0.25 0.2 0.3
    Quality control time per unit 0.1 0.1 0.1
    Capacity available:
    Machine hours 5,000
    Labour hours 6,000
    Quality control hours 2,500

    Fixed overheads are absorbed based on budgeted production and sales volume.

    Question 6
    By way of appropriate calculation, determine the bottleneck resource?
    Machine hours Labour hours Quality control hours
    Bottleneck resource Ο Ο Ο

    Question 7
    Based on throughput accounting principles, calculate the cost per factory hour to one decimal place?
    You should assume that the labour cost and variable overheads are now fixed for the
    short/immediate term, based on the value ($) which is applicable for the budgeted production of the
    products. (to one decimal place)
    $_______________
    Question 8
    Based on throughput accounting principles, state whether the product are profit or loss making in
    the short-term? You should assume that the labour cost and variable overheads are now fixed for
    the short/immediate term, based on the value ($) which is applicable for the budgeted production of
    the products.
    Product Profit making Loss making
    A Ο Ο
    B Ο Ο
    C Ο Ο

    Question 9
    Calculate the maximum profit that can be earned if bottleneck resource is allocated based on
    throughput accounting ratio?

    A. $268,635
    B. $492,663
    C. $211,600
    D. $502,800

    Question 10
    Which TWO of the following actions can improve throughput accounting ratio of loss making
    product?
    A. Reduce labour hours per unit for each product
    B. Reduce machine hours per unit for the loss making product
    C. Increase the selling price of loss making product.
    D. Increase total quality control hours

    The following scenario relates to questions 11 – 15.


    Eastern division of Global company expect a steady growth in sales. The division plan to launch a new product.
    The accountant of the division extracted the following information from statistical department of Global
    company.
    Sales
    The quarter sales of the new product is subject to predictable seasonal variation.
    Using moving average method, the quarterly sales trend represented by the following equation:
    T = 30000 + 8000Q
    Where:
    T = forecast sales trend value for the quarter
    Q = the quarter number (Q = 1, represent second quarter of 2023)
    The quarterly average seasonal variation using additive model was estimated as follows:
    Quarter 1 2 3 4
    Seasonal variation +45,000 -50,000 -50,000 +55,000

    Production costs
    Material costs:
    Direct material cost per unit was estimated to be $84.
    Direct labour:
    The new product will be produced in batches of 1,000 units. The first batch expected to take 20,000 hours.
    However, learning curve effect of 80% is expected up to first 100 batches. Direct labour cost per hour is $12.
    Learning index for learning rate 80% is -0.322.
    Production overheads:
    The accountant intend to use linear regression analysis to estimate production overhead cost for the new
    product using the data from the above table. He has provided you with the following calculation using eight
    pairs data:
    (000)
    𝛴 (total production overheads*production batches) 490,000
    𝛴 production batches² 296,960
    𝛴 production batches 1,504
    𝛴 production overheads 2,490

    Selling price
    Selling price of the new product is expected to have linear relationship with demand. At a price of $500
    demand is expected to 200,000 units. For every $50 increase in selling price, demand is expected to decrease
    by 10,000 units. 20,000 units

    Question 11
    Calculate the budgeted annual sales volume for 2024, based on the details provided above?
    A. 269,000 units
    B. 296,000 units
    C. 254,000 units
    D. 286,000 units

    Question 12
    Using a linear regression analysis, establish a production overhead cost equation (y = a + bx) for the new
    product?
    A. y = 21730 + 1540x
    B. y = 35260 + 1540x
    C. y = 52345 + 4068x
    D. y = 23468 + 6701x

    Question 13
    Calculate the direct labour cost per batch of 100th batch?
    A. $30,995
    B. $36,995
    C. $42,998
    D. $46,335

    Question 14
    Calculate the variable production cost per unit of 100th batch?
    A. $102.54
    B. $158.95
    C. $122.54
    D. $134.68
    Question 15
    Calculate the profit maximising selling price per unit based on variable production cost per unit of 100th batch?
    A. $301.37
    B. $354.85
    C. $391.69
    D. $361.27

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