Reference no: EM132936450

Georgia Company follows a lean manufacturing 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 nuts and bolts, has four operations: machining, finishing, assembly, and qualifying (testing). The machining process is automated, using computers. In finishing, sandblasting, buffing, and bluing are done. In assembly, the nuts are paired with the bolts. A final inspection for quality is then conducted.

For the coming year, cell has the following budgeted costs and cell time (both at theoretical capacity):
Budgeted conversion costs $5,000,000
Budgeted raw materials $6,000,000
Cell time 8,000 hours
Theoretical output 60,000 paired nuts and bolts

During the year, the following actual results were obtained:

Actual conversion costs $5,000,000
Actual materials $5,800,000
Actual cell time 8,000 hours
Actual output 50,000 paired nuts and bolts

Problem 1. Compute the velocity (number of nuts and bolts per hour) that the cell can theoretically achieve.

Problem 2. Compute the theoretical cycle time (number of hours or minutes per paired output) that it takes to produce one unit.

Problem 3. Compute the actual velocity and the actual cycle time.

Problem 4. Compute MCE. Comment on the efficiency of the operation.

Problem 5. Compute the budgeted conversion costs per minute. Using this rate, compute the conversion costs per unit of paired output if theoretical output is achieved. Using this measure, compute the conversion costs per unit for actual output. Does this product costing approach provide an incentive for the cell manager to reduce cycle time? Explain.