Performance management

Topic 1.4 - Throughput Accounting - Tutorial Question

Will and Macy operates separate divisions making and selling products with identical cost structure.

Sales price per unit $50.00

Direct material per unit $12.00

Direct labour per unit $8.00

Fixed production overheads of $200,000 per month are absorbed across the normal production level of 10,000 units per month. In each division, assume a bottleneck capacity of 20,000 hours.

In April, Will makes and sells exactly 10,000 units whilst Macy makes 12,000 units and sells only 9,500. Neither Will nor Macy 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) TPARs

(c) Contribution (as per marginal costing principles)