Exercise 13.8 (Algorithmic) Cycle Time and Conversion Cost per Unit Hatch Manufa

Question

Exercise 13.8 (Algorithmic) Cycle Time and Conversion Cost per Unit Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 70 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are $924,000 per year. The total labor minutes available are 132,000. During the year, the cell was able to produce 0.3 units of the product per hour. Suppose also that production incentives exist to minimize unit product costs.

Required: 1. Compute the theoretical conversion cost per unit.

$ ___ per unit

2. Compute the applied conversion cost per unit (the amount of conversion cost actually assigned to the product).

$ ___ per unit

Explanation / Answer

1.

Computation of the theoretical conversion cost per unit:

Computation of the theoretical conversion cost per unit = Theoritical rate * Theoritical cycle time

= $7 per minute * 70 minutes

= $490 per unit

Note:

Caluculate the Theoritical rate

Theoritical rate = Budgeted conversion manufacturing costs / Total labour minutes available

= $924000 / 132000

= $7 per minute

2.

Computation of the applied conversion cost per unit:

Applied conversion cost per unit = $7 per minute * 200 (note : 60 /0.03 = 200 )

= $1400 per unit

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