At the beginning of 2016, Terrapin Company installed a JIT purchasing and manufa

Question

At the beginning of 2016, Terrapin Company installed a JIT purchasing and manufacturing system. The following information has been gathered about one of the company's products:
Theoretical annual capacity 3,500 Actual production 1,800 Production hours available 700 Actual conversion cost per hour $10
What is the ideal conversion cost per unit? a. $2.00 per unit. b. $29.10 per unit. c. $1.02 per unit. d. $32 per unit. At the beginning of 2016, Terrapin Company installed a JIT purchasing and manufacturing system. The following information has been gathered about one of the company's products:
Theoretical annual capacity 3,500 Actual production 1,800 Production hours available 700 Actual conversion cost per hour $10
What is the ideal conversion cost per unit? a. $2.00 per unit. b. $29.10 per unit. c. $1.02 per unit. d. $32 per unit. At the beginning of 2016, Terrapin Company installed a JIT purchasing and manufacturing system. The following information has been gathered about one of the company's products:
Theoretical annual capacity 3,500 Actual production 1,800 Production hours available 700 Actual conversion cost per hour $10
What is the ideal conversion cost per unit? Theoretical annual capacity 3,500 Actual production 1,800 Production hours available 700 Actual conversion cost per hour $10

Explanation / Answer

Answer:

Option a i.e. $2.00 per unit

Ideal Conversion Cost per unit = Actual Conversion cost per hour / Production per hour
Production per hour = Annual Capacity / Production hours available
Production per hour = 3,500 / 700
Production per hour = 5 units per hour

Ideal Conversion Cost per unit = 10 / 5
Ideal Conversion Cost per unit = $2.00 per unit

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