Step 1: Find out the limiting factorStep 2: Compute return on the productStep 3: Compute total cost of the productStep 4: Divide return on factory hours to get "return per factory hour" (data can be in per unit form or in total form)Step 5: Divide total cost on factory hours to get "cost per factory hour" (data can be in per unit form or in total form)Step 6: Divide return per factory over cost per factory hour to find out Throughput Accounting Ratio TARREMEMBER!!! Total cost in throughput accounting means period costs and by period costs we mean:ALL COSTS oThEr THAN MATERIAL COSTand by factory hour we mean: hours as per limiting factorOk to make it more clear have a look at this QUESTION Let me make this question easy for peeps to understand... 1. we have different stages of production to make one product and each product must undergo all the stages, named as "Operations" in the question, to be a finished good. we are provided with the total number of hours available under each operation and these are provided in minutes NOT in hours. ok now lets do this question according the steps above: Step 1: find out the limiting factorIn this question we have the capacity or the total running hours provided under each operation 1, 2, 3 and so on... in row titled as "Capacity" as u can also see that in the following picture. These 5000 minutes are limiting factor as these are limiting our production in all departments just to 5000 minutes and not more than that. Step 2: Compute return on the productReturn on product A1 = Sales price - material cost = 20.80 - 10.80 = $10 Return on product A2 = Sales price - material cost = 20.80 - 10.80 = $10 Step 3: compute total cost of the productRemember by total cost here we mean period costs and period costs include all costs other than material costs Period Costs = Direct labour cost + Production Overhead + Factory admin cost = 36000 + 65160 + 75960 = 177120 Step 4: divide return on factory hours to get "return per factory hour" (data can be in per unit form or in total form)ok we calculated the return in step 2 for both products now we are going to divide that on hours as per limiting factor which u can find in the following picture indicated in red box so, Return per factory hour for A1 = 10/0.2 = 50 Return per factory hour for A2 = 10/0.25 = 40 Step 5: divide total cost on factory hours to get "cost per factory hour" (data can be in per unit form or in total form)we already have calculated the total cost and for that we need total factory hours as per limiting factor and these are 5000 so our cost per factory hour for A1 and A2 will be: 177120/5000 = 35.4 Step 6: Divide return per factory over cost per factory hour to find out Throughput Accounting Ratio TARTAR for A1 = 50/35.4 = 1.41 TAR for A2 = 40/35.4 = 1.13 |

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