Question

Cycle Time and Conversion Cost per Unit

Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 50 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are $1,008,000 per year. The total labor minutes available are 168,000. During the year, the cell was able to produce 1.2 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

Answer 1

Answer

1

Computation of the theoretical conversion cost per unit:

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

$6 per minute * 50 minutes

$300 per unit

Note:

Caluculate the Theoritical rate

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

$1008000 / 168000

$6 per minute

2

Computation of the applied conversion cost per unit:

Applied conversion cost per unit = $6 per minute * 200 (note : 60 /1.2 = 50 )

$300 per unit