Question Tag: Machine Utilization

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  • 15 Marks

PM – May 2024 – L2 – SC – Q7 – Cost-Volume-Profit (CVP) Analysis

Analysis of production constraints to determine optimal production levels and profit maximization using contribution analysis.

Jumbo Tailors Nigeria Limited manufactures three unique wears for which the maximum revenue for the coming year is estimated as follows:

Product Estimated Revenue (₦)
Trousers 8,250,000
Jackets 9,880,000
Skirts 12,390,000

Summarized unit cost data are as follows:

Product Direct Material (₦) Direct Labour (₦) Variable Costs (₦) Fixed Costs (₦)
Trousers 1,000 500 800 250
Jackets 900 450 1,600 500
Skirts 700 350 1,000 400

The allocation of fixed costs was derived from last year’s production level and may be reviewed if current output plans differ.

Estimated Selling Prices:

  • Trousers: ₦3,300
  • Jackets: ₦3,800
  • Skirts: ₦2,950

The products are processed on sewing machines housed in three blocks. Block A contains type I machines, with an estimated maximum machine hour capacity of 39,200 hours and a fixed overhead cost of ₦1,960,000 per annum. Block B contains type II machines, with 20,000 machine hours available and a fixed overhead cost of ₦1,500,000 per annum. Block C also contains type II machines, with 16,000 machine hours available and a fixed overhead cost of ₦740,000 per annum.

The required machine hours per unit of output for each product on each machine type are as follows:

Product Type I Machine (hours) Type II Machine (hours)
Trousers 2 3
Jackets 4 6
Skirts 6 2

Required:
a. Determine the optimal production plan which Jumbo Tailors Nigeria Limited should adopt. (12 Marks)
b. Calculate the total profit that would be made if the production plan in (a) above is adopted. (3 Marks)

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  • 30 Marks

PM – May 2024 – L2 – SA – Q1 – Costing Systems and Techniques

Calculation of machine utilization rates, identification of bottlenecks, and application of throughput accounting.

Tani Kamac (TK) makes three products A, B, and C. All three products must be offered for sale each month to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labor. Five direct employees are paid ₦80 per hour for a guaranteed minimum of 160 hours each per month. All products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hours required for each product are as follows:

Product A (hrs/unit) Product B (hrs/unit) Product C (hrs/unit)
Machine 1 1.5 4.5 3.0
Machine 2 1.0 2.5 2.0

The capacity of machine type 1 is 600 hours per month, and machine type 2 is 500 hours per month.

Additional details:

Product A Product B Product C
Selling Price (₦) 910 1,740 1,400
Component Cost (₦) 220 190 160
Other Direct Material Cost (₦) 230 110 140
Direct Labor Cost at ₦80/hr 60 480 360
Overheads (₦) 240 620 520
Profit (₦) 160 340 220
Maximum Monthly Demand (units) 120 70 60

TK uses marginal costing and contribution analysis for decision-making, while profits are reported using absorption costing.

Required:
a. Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 Marks)
b. Using the current system of marginal and contribution analysis, calculate the profit-maximizing monthly output of the three products. (4 Marks)
c. Explain why throughput accounting might provide more relevant information in TK’s circumstances. (6 Marks)
d. Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 Marks)
e. Explain the throughput accounting approach to optimizing inventory and its valuation. Contrast this approach to the current system used by TK. (5 Marks)
f. Explain the importance of identifying scarce resources when preparing budgets and the use of linear programming to determine the optimum use of resources. (6 Marks)

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  • 18 Marks

MA – Nov 2018 – L2 – Q3b – Relevant cost and revenue

Analysis of machine utilization, identification of bottlenecks, and comparison of marginal costing versus throughput accounting in a production setting.

KYC Ltd makes three products: Hand Chew (HC), Yogurt Swallow (YS), and Canned Lick (CL). All three products are sold as a package and so are offered for sale each month to be able to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labour. Five direct employees are paid GH¢8 per hour for a guaranteed minimum of 160 hours each per month. All of the products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hour requirements for each of the products are as follows:

Product Machine Type 1 (Hours/Unit) Machine Type 2 (Hours/Unit)
HC 1.5 1
YS 4.5 2.5
CL 3 2

The capacity of the available machines type 1 and 2 are 600 hours and 500 hours per month respectively. Details of the selling prices, unit costs, and monthly demand for the three products are as follows:

Product HC (GH¢/Unit) YS (GH¢/Unit) CL (GH¢/Unit)
Selling price 91 174 140
Component cost 22 19 16
Other direct material cost 23 11 14
Direct labour cost at GH¢8 per hour 6 48 36
Overheads 24 62 52
Profit 16 34 22

Maximum monthly demand (units):

  • HC: 120
  • YS: 70
  • CL: 60

Although KYC Ltd uses marginal costing and contribution analysis as the basis for its decision-making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods (inventories) are valued in the monthly management accounts at full absorption cost.

Required:

i) Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 marks)

ii) Using the current system of marginal costing and contribution analysis, calculate the profit-maximizing monthly output of the three products. (5 marks)

iii) Explain why throughput accounting might provide more relevant information in KYC’s circumstances. (4 marks)

iv) Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 marks)

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  • 15 Marks

PM – May 2024 – L2 – SC – Q7 – Cost-Volume-Profit (CVP) Analysis

Analysis of production constraints to determine optimal production levels and profit maximization using contribution analysis.

Jumbo Tailors Nigeria Limited manufactures three unique wears for which the maximum revenue for the coming year is estimated as follows:

Product Estimated Revenue (₦)
Trousers 8,250,000
Jackets 9,880,000
Skirts 12,390,000

Summarized unit cost data are as follows:

Product Direct Material (₦) Direct Labour (₦) Variable Costs (₦) Fixed Costs (₦)
Trousers 1,000 500 800 250
Jackets 900 450 1,600 500
Skirts 700 350 1,000 400

The allocation of fixed costs was derived from last year’s production level and may be reviewed if current output plans differ.

Estimated Selling Prices:

  • Trousers: ₦3,300
  • Jackets: ₦3,800
  • Skirts: ₦2,950

The products are processed on sewing machines housed in three blocks. Block A contains type I machines, with an estimated maximum machine hour capacity of 39,200 hours and a fixed overhead cost of ₦1,960,000 per annum. Block B contains type II machines, with 20,000 machine hours available and a fixed overhead cost of ₦1,500,000 per annum. Block C also contains type II machines, with 16,000 machine hours available and a fixed overhead cost of ₦740,000 per annum.

The required machine hours per unit of output for each product on each machine type are as follows:

Product Type I Machine (hours) Type II Machine (hours)
Trousers 2 3
Jackets 4 6
Skirts 6 2

Required:
a. Determine the optimal production plan which Jumbo Tailors Nigeria Limited should adopt. (12 Marks)
b. Calculate the total profit that would be made if the production plan in (a) above is adopted. (3 Marks)

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  • 30 Marks

PM – May 2024 – L2 – SA – Q1 – Costing Systems and Techniques

Calculation of machine utilization rates, identification of bottlenecks, and application of throughput accounting.

Tani Kamac (TK) makes three products A, B, and C. All three products must be offered for sale each month to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labor. Five direct employees are paid ₦80 per hour for a guaranteed minimum of 160 hours each per month. All products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hours required for each product are as follows:

Product A (hrs/unit) Product B (hrs/unit) Product C (hrs/unit)
Machine 1 1.5 4.5 3.0
Machine 2 1.0 2.5 2.0

The capacity of machine type 1 is 600 hours per month, and machine type 2 is 500 hours per month.

Additional details:

Product A Product B Product C
Selling Price (₦) 910 1,740 1,400
Component Cost (₦) 220 190 160
Other Direct Material Cost (₦) 230 110 140
Direct Labor Cost at ₦80/hr 60 480 360
Overheads (₦) 240 620 520
Profit (₦) 160 340 220
Maximum Monthly Demand (units) 120 70 60

TK uses marginal costing and contribution analysis for decision-making, while profits are reported using absorption costing.

Required:
a. Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 Marks)
b. Using the current system of marginal and contribution analysis, calculate the profit-maximizing monthly output of the three products. (4 Marks)
c. Explain why throughput accounting might provide more relevant information in TK’s circumstances. (6 Marks)
d. Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 Marks)
e. Explain the throughput accounting approach to optimizing inventory and its valuation. Contrast this approach to the current system used by TK. (5 Marks)
f. Explain the importance of identifying scarce resources when preparing budgets and the use of linear programming to determine the optimum use of resources. (6 Marks)

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  • 18 Marks

MA – Nov 2018 – L2 – Q3b – Relevant cost and revenue

Analysis of machine utilization, identification of bottlenecks, and comparison of marginal costing versus throughput accounting in a production setting.

KYC Ltd makes three products: Hand Chew (HC), Yogurt Swallow (YS), and Canned Lick (CL). All three products are sold as a package and so are offered for sale each month to be able to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labour. Five direct employees are paid GH¢8 per hour for a guaranteed minimum of 160 hours each per month. All of the products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hour requirements for each of the products are as follows:

Product Machine Type 1 (Hours/Unit) Machine Type 2 (Hours/Unit)
HC 1.5 1
YS 4.5 2.5
CL 3 2

The capacity of the available machines type 1 and 2 are 600 hours and 500 hours per month respectively. Details of the selling prices, unit costs, and monthly demand for the three products are as follows:

Product HC (GH¢/Unit) YS (GH¢/Unit) CL (GH¢/Unit)
Selling price 91 174 140
Component cost 22 19 16
Other direct material cost 23 11 14
Direct labour cost at GH¢8 per hour 6 48 36
Overheads 24 62 52
Profit 16 34 22

Maximum monthly demand (units):

  • HC: 120
  • YS: 70
  • CL: 60

Although KYC Ltd uses marginal costing and contribution analysis as the basis for its decision-making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods (inventories) are valued in the monthly management accounts at full absorption cost.

Required:

i) Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 marks)

ii) Using the current system of marginal costing and contribution analysis, calculate the profit-maximizing monthly output of the three products. (5 marks)

iii) Explain why throughput accounting might provide more relevant information in KYC’s circumstances. (4 marks)

iv) Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 marks)

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