XYZ company has a lean production cell dedicated to producing product A, a small
ID: 2455077 • Letter: X
Question
XYZ company has a lean production cell dedicated to producing product A, a small circuit board. They have decided to produce a second circuit board, Product B, in the same production cell.
The cell processes and the process time per circuit board is as follow:
Time to complete a single unit:
The circuit boards are produced using one-piece flow. A single board of either type is completed at one station before moving on to the next workstation. At any time, one circuit board is being worked on in each of the four workstations. Ten completed boards emerge from the cell each hour.
Like most manufacturing companies, XYZ company uses standard costing. Product A and product B both have a standard direct material cost of $42 per circuit board. The standard direct labor cost is $24.23 per direct labour hour and the standard overhead cost is 600% of direct labor dollars (or $145.38 per direct labor hour). The standard direct labor time per circuit board is equal to the standard processing time in each process.
The expected total conversion cost (direct labor and overhead) to run the production cell for running the production cell is $580 per hour.
Question 1. What is the total standard cost for product A? Show calculations
Question 2: What is the total standard cost for product B? Show calculations
Question 3. Can XYZ company produce more than 10 circuit boards per hour? Explain how they can, or why they cannot.
Question 4. What would the cost be for product A and product B if XYZ company assigned conversion costs based on throughput instead of using standard costing?
Operations Product A Product B Prepare for mounting 6 mins 6 Mins Mount Components 3 Mins 6 Mins Align & Secure 6 Mins 4 Mins Inspect & Pack 6 Mins 4 MinsExplanation / Answer
By using the standard time for production, 11 units of A or 12 units of B can be made in an hour.
If throughput has been used, only the sum of value of opening inventory of material and purchases subrtacted by closing value of material inventory would be the conversion cost. Since, here it is mentioned that cost of material per unit is $42, the conversion cost is assumed to be $42 per unit. The total cost will be
A B a Material Cost per unit ($) 42 42 Labour time required (minutes) Prepare for Mounting 6 6 Mount Components 3 6 Align & Secure 6 4 Inspect & Pack 6 4 Total time taken (minutes) 21 20 Labour Cost per Hour ($) 24.23 24.23 Labour cost per minute ($) (Cost per hour/60) 0.40 0.40 b Labour cost for producing on unit (cost per minute*time taken) 8.48 8.08 c Overhead Cost @ 600% of labour cost per unit 50.88 48.46 Conversion Cost of Production Cell per hour ($) 580 580 Number of circuit boards produced in an hour 10 10 d Conversion Cost of Production Cell per unit ($) 58 58 Total Standard Cost of Product (a+b+c+d) 159.36 156.54Related Questions
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