Question

The Glass Shop, a manufacturer of large windows, is experiencing a bottleneck in its plant. Setup time at one of its workstations has been identified as the culprit. A manager has proposed a plan to reduce setup time at a cost of $72,000. The change will result in 8,000 additional windows. The selling price per window is $18, direct labour costs are $3 per window, and the cost of direct materials is $5 per window. Assume all units produced can be sold.

What is the amount by which the change will result in an increase in the throughput contribution ?

Answer 1

To calculate the increase in the throughput contribution, we need to first determine the current throughput contribution and the new throughput contribution after implementing the proposed plan.

 

Current throughput contribution per window:

 

Revenue per window - Direct materials cost per window - Direct labor cost per window

= $18 - $5 - $3

= $10

 

Current total throughput contribution:

 

$10 x 8000 windows = $80,000

 

New throughput contribution per window:

 

Revenue per window - Direct materials cost per window - Direct labor cost per window

= $18 - $5 - $3

= $10

 

New total throughput contribution:

 

$10 x 16000 windows = $160,000

 

Increase in throughput contribution:

 

$160,000 - $80,000 = $80,000

 

Therefore, the proposed plan will result in an increase in the throughput contribution of $80,000.

the throughput contribution of $80,000.