Unit 9 and Failure Rates

System

If a finished product has 10% which is faulty and has to be destroyed - But is only discovered on the completion of the production... When do I do the calculation for this?

I have been taught to do it at the beginning when asked to produce the production budget, after adding closing stock and taking away opening stock.

Is this right?


the only thing that confused me was the 'Discovered on completion of product.

Would be very grateful of some advice.

System

Re:Unit 9 and Failure Rates

Hi

I had a problem with this aswell, Im not sure if this is correct but after studying my text, I think you only take of normal loss projections when calculating the production buget, if they are discovered after completion I think you just ignore it

System

Re:Unit 9 and Failure Rates

It sounds like they are saying the 10% of the finished goods produced will have to be scrapped.

Taking example figures at random of
Budgeted Sales 9500 units
Opening stock availible 2000
Closing stock required 1500
, I think they're after:

Production Budget wrote:

Budgeted Sales -- 9,500
Less opening stock -- (2,000)
Plus closing stock -- 1,500
Good production required -- 9,000
Plus expected loss (10%) -- 1,000
Total production required -- 10,000

Remember if 10% of the finished production will be scrapped, the amount you will need to produce is not the good production ×1.1 (ie +10%), it is actually good production ÷0.9:

If X% is to be scrapped then

Good Production = Total Production - (Total Production × X%)
Good Production = (Total Production× 100÷100) - (Total production × X÷100)

this looks better if you write it out on paper, but because both sides have 100 as the denominator, you can simplify it to

Good Production = Total production × ((100-X)÷100)

This can be rearranged by dividing both sides by ((100-X)÷100)

Good Production ÷ ((100-X)÷100) = Total production

System

Re:Unit 9 and Failure Rates

If its lost on issue to production, then Shells way is correct. If its damaged on completion, you work out a good production figure (90% in this case) then build in the wastage afterwards

System

Re:Unit 9 and Failure Rates

GJP104's explanation is good and agree's with Shell1's narrative.

You find the Good production required
then adjust it for the Total production that is necessary to have this amount of good (saleable) units.


This comes fropm the Dec 2005 paper and has 2 different products so is a good practice exercise on this technique:-

DATA
You are employed as a management accountant by Merano Ltd and report to Louise Owen,
the Finance Director. The company uses marginal (or variable) costing when preparing
management accounts and divides the year into 20-day periods for both production and sales.
One subsidiary, Solden Ltd, makes two products, the Exe and the Wye.
Louise Owen asks you to prepare Solden’s budgets for period 1, the 20 days ending
27 January 2006.
Louise Owen gives you the following information.
Sales data Units of Exe Units of Wye
• Budgeted sales for period 1, 20 days ending 27 January 3,200 2,344
• Budgeted sales for period 2, 20 days ending 24 February 3,000 2,500
Stock data
• The opening finished stocks for period 1 will be 140 Exes and 184 Wyes.
• Closing finished stocks of Exe for period 1 must equal 2 days’ sales in period 2.
• Closing finished stocks of Wye for period 1 must equal 4 days’ sales in period 2.
• There is no stock of work-in-progress at any time.
Faulty production
• 4% of Exe finished production and 5% of Wye finished production is faulty and has to
be destroyed. This faulty production has no value.

Task 1.1
Prepare a production budget for period 1, the 20 days ending 27 January 2006, showing
the number of Exes and the number of Wyes to be produced, including any faulty
production, to meet the budgeted sales in period 1.

System

Re:Unit 9 and Failure Rates

If you email me

sandy.hood@chichester.ac.uk

and put this as your subject :-

Unit 9 and Failure Rates

I have set up my out of office rules to send you my answer to just this task as an excel spreadsheet attachment