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: 410 units per hour Productive minutes available per year: 15,000,000 Annual conversion costs: $75,000,000 Actual velocity: 205 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 minutes per unit $_______Standard cost per minute $_______ per minute Conversion cost per unit $_______ 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 minutes per unit $_______ Conversion cost per unit $______ per unit What incentive exists for managers when cycle time costing is used?

3. What if the actual velocity is 328 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 minutes per unit Conversion cost per unit $ ________ per unit

Explanation / Answer

1)

Actual cycle time

minutes per unit

Standard cost per minute

$ 75,000,000/15,000,000 = $5

per minute

Conversion cost per unit

$0.292 * 5 = 1.46

per unit

2)

Theoretical cycle time = 60/410 = 0.1463

minutes per unit

Conversion cost per unit = 5 * 0.1463 = $0.7315

$

per unit

3)

Actual cycle time = 60/328 = 0.1829

minutes per unit

Conversion cost per unit = 5 * 0.1829 = 0.9146

$

Actual cycle time

minutes per unit

Standard cost per minute

$ 75,000,000/15,000,000 = $5

per minute

Conversion cost per unit

$0.292 * 5 = 1.46

per unit

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