Question

Example: A company has the following data for one of its manufacturing cells:

Theoretical velocity	20 units per hour
Productive minutes available per year	1,200,000
Annual conversion cost	$4,800,000
Actual velocity	15 units per hour

Actual cycle time = 60 minutes/15 units = 4 minutes per unit
Standard cost per minute = $4 per minute
Actual conversion cost per unit = $4 × 4 = $16 per unit
Theoretical cycle time = 60 minutes/20 units = 3 units per hour
Theoretical conversion cost per unit = $4 × 3 = $12 per unit

What we can see from this example is that the company has an incentive to reduce cycle time. It actually takes 4 minutes per unit but it could take as little as 3 minutes per unit. If cycle time could be reduced, the number of units produced could be increased and conversion cost per unit could be decreased. If actual cycle time were decreased to 3.5 minutes per unit, actual velocity (rounded to the nearest whole unit) would be $ _____units per hour, and actual conversion cost would be $______per unit.

Manufacturing cycle efficiency (MCE) is another measure of operating efficiency.

MCE = Processing time/(Processing time + Move time + Inspection time + Waiting time + Other non-value-added time)

Example: A company provided the following information for one of its products for each hour of production:

Actual velocity:	50 units per hour
Move time:	10 minutes
Inspection time:	5 minutes
Rework time:	15 minutes

Processing time = 60 minutes – 10 minutes – 5 minutes – 15 minutes = 30 minutes MCE = 30/60 = 0.5

This MCE of 0.5 tells the company that 50% of the time is value-added processing time and the other 50% is waste. The company now has an incentive to reduce the non-value-added time. Suppose that quality were increased and rework time was reduced to 5 minutes. The new MCE (rounded to two significant digits) would be _____.

Answer 1

If actual cycle time were decreased to 3.5 minutes per unit, actual velocity (rounded to the nearest whole unit) would be (60/3.5 = 17) units per hour, and actual conversion cost would be ($4 x 3.5 = $14) per unit.

Processing time = 60 minutes – 10 minutes – 5 minutes – 5 minutes = 40 minutes MCE = 40/60 = 0.67

Rework time was reduced from 15 minutes to 5 minutes.

The new MCE (rounded to two significant digits) would be 0.67  . ( 40/60)

Please comment in case of any further doubts!