Norton Company has the following data for one of its production departments:
Theoretical velocity: 300 units per hour
Productive minutes available per year: 10,000,000
Annual conversion costs: $60,000,000
Actual velocity: 160 units per hour
Required:
1. Calculate the actual conversion cost per unit using actual cycle time and the standard cost
per minute.
2. Calculate the ideal conversion cost per unit using theoretical cycle time and the standard
cost per minute. What incentive exists for managers when cycle time costing is used?
3. What if the actual velocity is 220 units per hour? What is the conversion cost per unit? What effect will this improvement have on delivery performance?