Performance management

Topic 1.4 - Throughput Accounting - BL Question Question Sam and May operates separate divisions making and selling products with identical cost structure. Selling price per unit $200.00 Direct material per unit $60.00 Direct labour per unit $40.00 Variable Production overheads/unit $20.00 Fixed production overheads of $500,000 per month are absorbed across the normal production level of 50,000 units per month. In each division, assume a bottleneck capacity of 40,000 hours. In April, Sam makes and sells exactly 40,000 units whilst May makes 52,000 units and sells only 45,000. Neither Sam nor May has any opening or closing inventory of finished units, raw materials or components. Required: Show which manager would benefit if bonuses were given on: (a) Actual Profit (use absorption costing approach) (b) Throughput Accounting Ratio (TPAR) (c) Contribution (as per marginal costing principles)