The theoretical cycle time for a product is 30 minutes per unit. The budgeted conversion costs for the manufacturing cell are $2,700,000 per year. The total labor minutes available are 600,000. 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.

2. Compute the applied conversion cost per unit (the amount of conversion cost actually assigned to the product).

3. Discuss how this approach to assigning conversion costs can improve delivery time performance.