Larson Manufacturing adopted lean management and reorganized their factory into production cells. Each production cell produces a small family of products or components from start to finish. For the industrial fittings cell, they replaced the CNC machine with a drill press. The drill press is a much less costly machine than the CNC machine. It also has a longer cycle time, but it is faster and easier to set up. The faster setups allowed larson to reduce their batch sizes from 2500 to 250. The lean cell is depicted as follows:

Each fitting requires four minutes on the drill press. Drilled fittings awaiting lathing are located between the two machines in the cell, so lathe operations could begin drilling was complete on the entire batch. However, some time is required to set up the lathe to produce the particular model fitting in the new batch. The fittings completed on the lathe are in placed in from of the grinding machine. Grinding completes work on the batches on a first in, first out basis. Fittings completed on the grinder are placed in front of the inspection and packing workstation. Once the entire batch is complete, it is moved to the warehouse for finished goods storage, and the units are available to be included in shipments to customers.

Despite adopting lean management, larson manufacturing continues to use standard costing. The standard direct Material cost is $1.50 per fitting. The standard direct labor cost is $20 per direct labour hour and the standard overhead cost is $60 per direct labor hour. The standard direct labor time per fitting is equal to the standard processing time in each process.

Time to complere a single unit :

(1) Drill on press : 4 Minutes

(2) Machine on lathe: 4 minutes

(3) Grind: 6 minutes.

(4) Inspect & pack: 4 minutes

Batch: 250

Question 1. What is the total standard cost per fitting? Show your calculations.

Question 2. Suppose a customer wants 100 fittings of model Q*5, not currently in stock. Assuming larson can instantly begin production of a batch of 250 model Q*5s on the drill press when they receive the order, what is the shortest possible amount of time it would take to have the 100 Q*5s in the warehouse ready to be shipped to the customer? Explain your answer including any assumptions and calculations.

Questions 3. Regardless of what the standard costs say, how do you think the actual costs of operating production cells will compare to the conventional departmental organization? What costs are likely to be higher and what costs are likely to be lower?