A. Conventional departmental organization by function. Acme Manufacturing produc

Question

A. Conventional departmental organization by function.

Acme Manufacturing produces a family of industrial fittings that vary by shape and size, but that all follow the four-step process depicted in the figure below.

Production starts in the drilling department, where each fitting requires an average of one minute on a CNC machine. Because of the length of time required to set up a CNC machine to produce a certain model, the fittings are produced in batches of 2,500 and only one CNC machine is setup per batch. When the entire batch of 2,500 fittings is completed, the batch is moved to the next department, Machining, where the fittings are turned on a lathe. Each fitting requires four minutes on a lathe. When the entire batch is complete in machining, the 2,500 units are moved to the Grinding department, where each unit requires six minutes on a grinder. When the entire batch is completed in Grinding, the 2,500 fittings are moved to the Inspection and Packing Department. It takes four minutes to inspect and pack each fitting. Once the entire batch is complete in Inspection and Packing, it is moved to the warehouse for finished goods storage, and the units are available to be included in shipments to customers. Like most manufacturing companies, Acme Manufacturing uses standard costing. The standard direct material cost is $1.50 per fitting. The standard direct labor cost is $20 per direct labor hour and the standard overhead cost is $60 per direct labor hour. The standard direct labor time per fitting is equal to the standard processing time in each process.

Questions: 1. What is the total standard cost per fitting? Show your calculations.

2. Suppose a customer wants 100 fittings of model QX5, not currently in stock. Assuming Acme can instantly begin production of a batch of 2,500 model QX5s in Drilling when they receive the order, what is the shortest possible amount of time it would take to have the 100 QX5s in the warehouse ready to be shipped to the customer? Explain your answer including any assumptions and calculations. Is that a long time?

Drill on CNC Inspect & pack 4 minutes machine Inspect & 1 minute Batch: 2,500 Grind Machine on lathe 6 minutes 4 minutes Times to complete a single unit

Explanation / Answer

1 Standard time for each fitting Drill on CNC Machine 1 Minute Machine on lathe 4 Minutes Grind 6 Minutes Inspect and Pack 4 Minutes Standard time for each fitting 15 Minutes Standard cost for each fiiting standard direct material cost $1.50 standard direct labor cost ($20*15/60) $5.00 Standard overhead cost ($60*15/60) $15.00 Total Standard cost for each fiiting $21.50 2 When the batch of 2500 fittings are complted in each stage, then only batch will transfer to next stage Thereofore, for 2500 fittings or for 1 batch Drill on CNC Machine (2500*1) 2500 Minute Machine on lathe (2500*4) 10000 Minutes Grind (2500*6) 15000 Minutes Inspect and Pack (100 units*4) 400 Minutes Standard time for each fitting 27900 Minutes or 625 Hours In the packing department once the 100 fittings are completed those can be send for finished goods department to transfer to the customer. Hence it will take 400 minutes only

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