Question

Cathode Anode, Inc., a manufacturing company, produces electrical products. The theoretical cycle time for one of its products, extension cords, is 90 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to extension cords are $1,460,000 per year. The total labor minutes available are 365,000. During the year, the cell was able to produce 0.5 unit of the product per hour. Suppose that production incentives exist to minimize unit product costs. Calculate the ideal conversion cost per unit using the theoretical cycle time and the standard cost per minute.

Answer 1

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Ans:

Information provided:

Theoretical cycle time = 90 min per unit

Budgeted conversion cost = $1,460,000 per year

Available labor minutes = 365,000 minutes

Actual production per hour = 0.5 unit

(i) Calculation of Ideal conversion cost per unit using theoretical cycle time:

Theoritical unit production (365,000 min / 90 min) = 4055.55 unit

Ideal conversion cost ($1,460,000 / 4055.55 unit) = $360 per unit

(ii) Calculation of Ideal conversion cost per unit using standard cost per minute:

standard cost per minute ($1,460,000 / 365,000 min) = $4

Ideal conversion cost ($4 x 90 min) = $360 per unit

Hence, Ideal conversion cost per unit using theoritical cycle time and standard cost per minute is $360 per unit.

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