Norton Company has the following data for one of its production departments: The

Question

Norton Company has the following data for one of its production departments:

Theoretical velocity: 120 units per hour Productive minutes available per year: 41,000,000 Annual conversion costs: $246,000,000 Actual velocity: 72 units per hour Required: 1. Calculate the actual conversion cost per unit using actual cycle time and the standard cost per minute. Round your actual cycle time answer to three decimal places and your cost per unit answer to the nearest cent. Actual cycle time Standard cost per minute Conversion cost per unit 2. Calculate the ideal conversion cost per unit using theoretical cycle time and the standard cost per minute. If required, round your answers to two decimal places. Theoretical cycle time Conversion cost per unit What incentive exists for managers when cycle time costing is used? 3 minutes per unit per minute per unit minutes per unit per unit To reduce cycle time 3. What if the actual velocity is 84 units per hour? What is the conversion cost per unit? If required, round your calculations and final answers to two decimal places. Actual cycle time Conversion cost per unit 3 minutes per unit 3 per unit

Explanation / Answer

1 Actual cycle time

It takes 1 hour to complete 72 units

So 72 units get completed in = 60 minutes

1 units will get completed in = 60/72 minutes = 0.833 mintes per unit

Standard cost per minute

Standard cost per minute = annualconversion cost/ productive minutes available per year

   = 246000000/41000000 = 6$ per minute

Conversion cost per unit

Conversion cost per unit = Actual cycle time * Standard cost per minute

   = .833*6 = 4.998 $ per unit

*1 minute costs us 6$

   and it takes .833 minute to complete one unit in actual so

   .833 minute costs us = 6*.833 = 4.998

2 Theoritical cycle time

It Should takes 1 hour to complete 120 units

So 120 units get completed in = 60 minutes

   1 units will get completed in = 60/120 minutes = 0.5 minutes per unit

Conversion cost per unit

Ideal Conversion cost per unit = Theoritical cycle time * Standard cost per minute

   = 0.5*6 = 3 $ perunit

*1 minute costs us 6$

   and it should takes 0.5 minute to complete one unit ideally

   so .5 minute costs us = 6*0.5= 3

3 If the actual velocity is 84 units per hour , then the conversion cost per unit will be

Actual cycle time will be

84 units in = 60 minute

1 unit in = 60/84 = 0.714 minutes per unit

converison cost will be = Act *Standard cost per minute

   = .714*6 = 4.284 $ per unit

*Self understanding

We need cost per unit

Act = minute/unit

St cost = cost / minute

So mutiplying Act* St cost we get minute/unit * cost /minute,

minute- minute cancels out each other ,

So we get cost / unit , which is conversion cost

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