Hatch Manufacturing produces multiple machine parts. The theoretical cycle time

Question

Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 45 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are $432,000 per year. The total labor minutes available are 144,000. During the year, the cell was able to produce 1.5 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

Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 45 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are $432,000 per year. The total labor minutes available are 144,000. During the year, the cell was able to produce 1.5 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. 135 per unit 2. Compute the applied conversion cost per unit (the amount of conversion cost actually assigned to the product). 270 e unit

Explanation / Answer

1)

Theoretical conversion cost per unit:

= ($432,000/144,000)×45

= $135 per unit

2)

Applied conversion cost per unit:

= ($432,000/144,000)×40

= $120 per unit

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