Cycle Time, Velocity, Product Costing

Mulhall, Inc., has a JIT system in place. Each manufacturing cell is dedicated to the production of a single product or major subassembly. One cell, dedicated to the production of mopeds, has four operations: machining, finishing, assembly, and qualifying (testing). The machining process is automated, using computers. In this process, the models frame and engine are constructed. In finishing, the frame is sandblasted, buffed, and painted. In assembly, the frame and engine are assembled. Finally, each model is tested to ensure operational capability.

For the coming year, the moped cell has the following budgeted costs and cell time (both at theoretical capacity):

Budgeted conversion costs	$5,437,440
Budgeted materials	$18,532,000
Cell time	37,760
Theoretical output	23,600	models

During the year, the following actual results were obtained:

Actual conversion costs	$5,437,440
Actual materials	$4,026,000
Actual cell time	37,760	hours
Actual output	18,880	models

Required:

1. Compute the velocity (number of models per hour) that the cell can theoretically achieve. If required, round your answer to two decimal places. model per hour

Now, compute the theoretical cycle time (number of minutes per model) that it takes to produce one model. In your calculations, do not round the theoretical velocity. minutes per model

2. Compute the actual velocity and the actual cycle time. If required, round your actual velocity answer to three decimal places.

Actual velocity		model per hour
Actual cycle time		minutes per model

3. Compute MCE. If required, round your answer to two decimal places.

Comment on the efficiency of the operation.

4. Compute the budgeted conversion cost per minute. If required, round your answer to the nearest cent. $ per minute

Using this rate, compute the conversion cost per model if theoretical output is achieved. $ per model

Using this measure, compute the conversion cost per model for actual output. $ per model

Does this product costing approach provide an incentive for the cell manager to reduce cycle time?