See Lean Manufacturing Daily Activity Electronic Testing Equipment Company is transitioning to a lean manufacturing system and has just finalized two order fulfillment value streams. (Testing Tools & Replacement Components). Before moving to the value-stream structure, Electronic Testing had a well-developed ABC system and had good success with a better accruacy with product costs. Management wants to discontinue ABC because of its intense data demands and the cost of updating to the lean practices. They also want to be sure that the average costing approach of value-stream costing does not produce distorted product costs. Management has provided information on the Testing Tools Value Stream for the coming week. Conversion Costs Electrometor (hours used) Quarketor (hours used) Total Activity Hours Activity 500 200 480 800 Order processing Purchasing Lathe Milling Drilling Assembly Inspection Shipping Invoicing 35,000 75,000 130,000 222,000 138,000 58,000 30,000 18,000 22.000 720 1.250 400 320 1,200 1,680 700 200 400 800 1,750 600 800 2,000 2.400 2.000 1,000 900 1,600 1,300 800 500 800 Totals $ 728000 6.100 6,950 13,050 During this week, this value stream is expected to produce and ship the following units of each part: Electrometor Quarketor 22,000 34,000 Material costs are computed separately, so we are interested in comparing the conversion cost for ABC vs Loan. Complete items (1) through (3) below. (1) Calculate the average unit conversion cost for the two machine parts. Average Conversion Cost per Unit (2) (a) Calculate the conversion cost per unit for each part, using ABC. (2)(b) Comparing ABC unit cost with the average cost, what would you recommend? Why? Calculate Activity Rates: (Round to cents) Order processing Purchasing Lathe Milling Drilling Assembly Inspection Shipping Invoicing Conversion Cost Assignment Order processing Purchasing Lathe Milling Drilling Assembly Inspection Shipping Invoicing Unit Conversion Cost (3) (a) Calculate the conversion cost per unit using DBC. (First, you will need to calculate the cycle time for each product) (3) (b) Based on this outcome, what would you recommendt to the management of Manhandle Tool Company? Why? Cycle time product 1 Cycle time product 2 Conversion Cost Rate Unit Conversion Cost See Lean Manufacturing Daily Activity Electronic Testing Equipment Company is transitioning to a lean manufacturing system and has just finalized two order fulfillment value streams. (Testing Tools & Replacement Components). Before moving to the value-stream structure, Electronic Testing had a well-developed ABC system and had good success with a better accruacy with product costs. Management wants to discontinue ABC because of its intense data demands and the cost of updating to the lean practices. They also want to be sure that the average costing approach of value-stream costing does not produce distorted product costs. Management has provided information on the Testing Tools Value Stream for the coming week. Conversion Costs Electrometor (hours used) Quarketor (hours used) Total Activity Hours Activity 500 200 480 800 Order processing Purchasing Lathe Milling Drilling Assembly Inspection Shipping Invoicing 35,000 75,000 130,000 222,000 138,000 58,000 30,000 18,000 22.000 720 1.250 400 320 1,200 1,680 700 200 400 800 1,750 600 800 2,000 2.400 2.000 1,000 900 1,600 1,300 800 500 800 Totals $ 728000 6.100 6,950 13,050 During this week, this value stream is expected to produce and ship the following units of each part: Electrometor Quarketor 22,000 34,000 Material costs are computed separately, so we are interested in comparing the conversion cost for ABC vs Loan. Complete items (1) through (3) below. (1) Calculate the average unit conversion cost for the two machine parts. Average Conversion Cost per Unit (2) (a) Calculate the conversion cost per unit for each part, using ABC. (2)(b) Comparing ABC unit cost with the average cost, what would you recommend? Why? Calculate Activity Rates: (Round to cents) Order processing Purchasing Lathe Milling Drilling Assembly Inspection Shipping Invoicing Conversion Cost Assignment Order processing Purchasing Lathe Milling Drilling Assembly Inspection Shipping Invoicing Unit Conversion Cost (3) (a) Calculate the conversion cost per unit using DBC. (First, you will need to calculate the cycle time for each product) (3) (b) Based on this outcome, what would you recommendt to the management of Manhandle Tool Company? Why? Cycle time product 1 Cycle time product 2 Conversion Cost Rate Unit Conversion Cost
