Which of the following statements is NOT consistent with the theory of constraints?
A. There is no inventory of work in progress or finished good held
B. Raw materials are converted into sales as quickly as possible
C. Operations prior to the bottleneck operate at the same level as the bottleneck
D. Conversion costs and investment costs are kept to a minimum
A company manufactures a product which requires four hours per unit of machine time. Machine time is a bottleneck resource as there are only ten machines which are available for 12 hours per day, five days per week. The product has a selling price of $130 per unit, direct material costs of $50 per unit, labour costs of $40 per unit and factory overhead costs of $20 per unit. These costs are based on weekly production and sales of 150 units.
What is the throughput accounting ratio?
A. 1·33
B. 2·00
C. 0·75
D. 0·31
Glam Co is a hairdressing salon which provides both ‘cuts’ and ‘treatments’ to clients. All cuts and treatments at the salon are carried out by one of the salon’s three senior stylists. The salon also has two salon assistants and two junior stylists.
Every client attending the salon is first seen by a salon assistant, who washes their hair; next, by a senior stylist, who cuts or treats their hair depending on which service the client wants; then finally, a junior stylist who dries their hair. The average length of time spent with each member of staff is as follows:
| Cut Hours | Treatment Hours | |
|---|---|---|
| Assistant | 0·1 | 0·3 |
| Senior stylist | 1·0 | 1·5 |
| Junior stylist | 0·6 | 0·5 |
The salon is open for eight hours each day for six days per week. It is only closed for two weeks each year. Staff salaries are $40,000 each year for each senior stylist, $28,000 each year for each junior stylist and $12,000 each year for each of the assistants. The cost of cleaning products applied when washing clients’ hair is $1·50 per client. The cost of all additional products applied during a ‘treatment’ is $7·40 per client. Other salon costs (excluding labour and raw materials) amount to $106,400 each year.
Glam Co charges $60 for each cut and $110 for each treatment.
The senior stylists’ time has been correctly identified as the bottleneck activity.
The salon has calculated the cost per hour to be $42·56.
What is the throughput accounting ratio (TPAR) for both services?
| Cuts | Treatments | |
|---|---|---|
| A. | 1·37 | 1·58 |
| B. | 1·41 | 2·38 |
| C. | 1·37 | 1·61 |
| D. | 1·41 | 2·41 |
Glam Co is a hairdressing salon which provides both ‘cuts’ and ‘treatments’ to clients. All cuts and treatments at the salon are carried out by one of the salon’s three senior stylists. The salon also has two salon assistants and two junior stylists.
Every client attending the salon is first seen by a salon assistant, who washes their hair; next, by a senior stylist, who cuts or treats their hair depending on which service the client wants; then finally, a junior stylist who dries their hair. The average length of time spent with each member of staff is as follows:
| Cut Hours | Treatment Hours | |
|---|---|---|
| Assistant | 0·1 | 0·3 |
| Senior stylist | 1·0 | 1·5 |
| Junior stylist | 0·6 | 0·5 |
The salon is open for eight hours each day for six days per week. It is only closed for two weeks each year. Staff salaries are $40,000 each year for each senior stylist, $28,000 each year for each junior stylist and $12,000 each year for each of the assistants. The cost of cleaning products applied when washing clients’ hair is $1·50 per client. The cost of all additional products applied during a ‘treatment’ is $7·40 per client. Other salon costs (excluding labour and raw materials) amount to $106,400 each year.
Glam Co charges $60 for each cut and $110 for each treatment.
The senior stylists’ time has been correctly identified as the bottleneck activity.
Which of the following statements regarding the theory of constraints are correct?
(1) It focuses on identifying stages of congestion in a process when production arrives more quickly than the next stage can handle
(2) It is based on the concept that organisations manage three key factors – throughput, operating expenses and inventory
(3) It uses a sequence of focusing steps to overcome a single bottleneck, at which point the improvement process is complete
(4) It can be applied to the management of all limiting factors, both internal and external, which can affect an organisation
A. (1) and (2) only
B. (1), (2) and (3)
C. (2), (3) and (4)
D. (1), (3) and (4)
| Selling price | $320 |
| Material costs | $80 |
| Conversion costs | $60 |
| Time on bottleneck resource | 6 minutes |
What is the return per hour for product A?
A. $40
B. $2,400
C. $30
D. $1,800
| Per unit: | P1 | P2 | P3 |
|---|---|---|---|
| $ | $ | $ | |
| Selling price | 120 | 140 | 95 |
| Materials ($2 per kg) | (40) | (32) | (22) |
| Labour ($10 per hour) | (10) | (20) | (11) |
| Variable overheads | (20) | (28) | (24) |
| Fixed overheads | (6) | (9) | (12) |
| Profit per unit | 44 | 51 | 26 |
| P1 | P2 | P3 | |
|---|---|---|---|
| A. | 2nd | 1st | 3rd |
| B. | 2nd | 3rd | 1st |
| C. | 1st | 3rd | 2nd |
| D. | 1st | 2nd | 3rd |
The following statements have been made in relation to the concepts outlined in throughput accounting:
(i) Inventory levels should be kept to a minimum
(ii) All machines within a factory should be 100% efficient, with no idle time
Which of the above statements is/are correct?
A. (i) only
B. (ii) only
C. Both (i) and (ii)
D. Neither (i) nor (ii)
| Procedure | A | B |
|---|---|---|
| $ | $ | |
| Surgical time and materials | 1,200 | 2,640 |
| Anaesthesia time and materials | 800 | 1,620 |
BH currently calculates the overhead cost per procedure by taking the total overhead cost and simply dividing it by the number of procedures, then rounding the cost to the nearest 2 decimal places. Using this method, the total cost is $2,475·85 for Procedure A and $4,735·85 for Procedure B.
Recently, another local hospital has implemented activity-based costing (ABC). This has led the finance director at BH to consider whether this alternative costing technique would bring any benefits to BH. He has obtained an analysis of BH’s total overheads for the last year and some additional data, all of which is shown below:
| Cost | Cost driver | $ |
|---|---|---|
| Administrative costs | Administrative time per procedure | 1,870,160 |
| Nursing costs | Length of patient stay | 6,215,616 |
| Catering costs | Number of meals | 966,976 |
| General facility costs | Length of patient stay | 8,553,600 |
| Total overhead costs | 17,606,352 |
| Procedure | A | B |
|---|---|---|
| No. of procedures | 14,600 | 22,400 |
| Administrative time per procedure (hours) | 1 | 1·5 |
| Length of patient stay per procedure (hours) | 24 | 48 |
| Average no. of meals required per patient | 1 | 4 |
Required:
(a) Calculate the full cost per procedure using activity-based costing. (6 marks)
(b) Making reference to your findings in part (a), advise the finance director as to whether activity-based costing should be implemented at BH. (4 marks)
Glam Co is a hairdressing salon which provides both ‘cuts’ and ‘treatments’ to clients. All cuts and treatments at the salon are carried out by one of the salon’s three senior stylists. The salon also has two salon assistants and two junior stylists.
Every customer attending the salon is first seen by a salon assistant, who washes their hair; next, by a senior stylist, who cuts or treats the hair depending on which service the customer wants; then finally, a junior stylist who dries their hair. The average length of time spent with each member of staff is as follows:
| Cut Hours | Treatment Hours | |
|---|---|---|
| Assistant | 0·1 | 0·3 |
| Senior stylist | 1 | 1.5 |
| Junior stylist | 0·5 | 0·5 |
The salon is open for eight hours each day for six days per week. It is only closed for two weeks each year. Staff salaries are $40,000 each year for senior stylists, $28,000 each year for junior stylists and $12,000 each year for the assistants. The cost of cleaning products applied when washing the hair is $0·60 per client. The cost of all additional products applied during a ‘treatment’ is $7·40 per client. Other salon costs (excluding labour and raw materials) amount to $106,400 each year.
Glam Co charges $60 for each cut and $110 for each treatment.
The senior stylists’ time has been correctly identified as the bottleneck activity.
Required:
(a) Briefly explain why the senior stylists’ time has been described as the ‘bottleneck activity’, supporting your answer with calculations. (4 marks)
Glam Co is a hairdressing salon which provides both ‘cuts’ and ‘treatments’ to clients. All cuts and treatments at the salon are carried out by one of the salon’s three senior stylists. The salon also has two salon assistants and two junior stylists.
Every customer attending the salon is first seen by a salon assistant, who washes their hair; next, by a senior stylist, who cuts or treats the hair depending on which service the customer wants; then finally, a junior stylist who dries their hair. The average length of time spent with each member of staff is as follows:
| Cut Hours | Treatment Hours | |
|---|---|---|
| Assistant | 0·1 | 0·3 |
| Senior stylist | 1 | 1.5 |
| Junior stylist | 0·5 | 0·5 |
The salon is open for eight hours each day for six days per week. It is only closed for two weeks each year. Staff salaries are $40,000 each year for senior stylists, $28,000 each year for junior stylists and $12,000 each year for the assistants. The cost of cleaning products applied when washing the hair is $0·60 per client. The cost of all additional products applied during a ‘treatment’ is $7·40 per client. Other salon costs (excluding labour and raw materials) amount to $106,400 each year.
Glam Co charges $60 for each cut and $110 for each treatment.
The senior stylists’ time has been correctly identified as the bottleneck activity.
Required:
(b) Calculate the throughput accounting ratio (TPAR) for ‘cuts’ and the TPAR for ‘treatments’ assuming the bottleneck activity is fully utilised. (6 marks)
A company manufactures a product which requires four hours per unit of machine time. Machine time is a bottleneck resource as there are only ten machines which are available for 12 hours per day, five days per week. The product has a selling price of $130 per unit, direct material costs of $50 per unit, labour costs of $40 per unit and factory overhead costs of $20 per unit. These costs are based on weekly production and sales of 150 units.
What is the throughput accounting ratio (to 2 decimal places)?
A. 1·33
B. 2·00
C. 0·75
D. 0·31