WAQ produces a single product X, which passes through three different processes, A,B and

C. The throughput per hour of the three processes is 12,10 and 15 units of X respectively. The
company works an 8 hour day. 6 day week, 48 week a year. The SP of Xis $ 150 p.u.&
material cost$ 30 p.u. Conversion costs are planned to be $24,000 per week.
Requirements:(a) Determine the throughout accounting (TA) ratio per day.
(b) Calculate how much the company could spend on equipment to improve the
throughout of process B if this wished to recover its costs in the following time
periods.
2 years
12weeks
(c ) Calculate the revised TA ratio if this money is spent.
Aardee industries manufactures pharmaceutical products in two departments: Mixing and
Tablet Making. Additional information on the two departments follows. Each tablet contains
0.5 gram of direct materials.
Mixing
Tablet Making
Capacity per hour
150 grams
200 tablets
Monthly capacity (2,000 hours available
In each of mixing and tablet making)
300,000 grams
400,000 tablets
Monthly production
200,000 grams
390,000 tablets
Fixed operating costs(excluding direct materials)
$16,000
$ 39,000
Fixed operating costs per tablet
($16,000 / 200,000; $39,000 / 390,000)
$0.08 per gram
$0.10 per tablet
The Mixing Departments makes 200,000 grams of direct materials mixture(enough to
make 400,000 tablets) because the Tablet-Making Departments has only enough capacity
to process 400,000 tablets. All direct materials costs are incurred in the Mixing
Department. Aardee incurs $156,000 in direct materials costs. The tablet Making
Department manufactures only 390.000 tablet from the 200,000 grams of mixture
processed; 2.5% of the direct materials mixture is lost in the tablet-making process. Each
tablet sells for $1.All costs other than direct materials costs are fixed costs. The following
requirements refer only to the preceding data.
There is no connection between the requirements.
1:- An outside contractor makes the following offer. If Aardee will supply the contractor
with 10,000 grams of mixture, the contractor will manufacture 19,500 tablets for Aardee
following for the normal 2.5% loss during the tablet-making process at $0.12 per tablet.
Should Aardee accept the companys offer? Show your calculations.
2:- Another company offers to prepare 20,000 grams of mixture a month from direct
materials Aardee supplies. The company will charge $0.07 per gram of mixture. Should
Aardee accept the companys offer? Show your calculations.
3:- Aardees engineers have devised a method that would improve quality in the tabletmaking operation. The estimate that the 10,000 tablets currently being lost would be

saved. The modification would cost $7,000 a month. Should Aardee implement the new
method? Show your calculation.
4:- Suppose that Aardee also loses 10,000 grams of mixture in its mixing opertion.
These losses can be reduced to zero if the company is willing to spend $9,000 per month
in quality-improvement methods. Should Aardee adopt the quality improvement
method? Show your calculations.
5:- What are the benefits of improving quality at the mixing operation compared with
improving quality at the tablet-making operation?