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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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(Appendix 11A) Cycle Time, Velocity, Conversion Cost

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. 1. Compute the theoretical conversion cost per unit.
  2. 2. Compute the applied conversion cost per unit (the amount of conversion cost actually assigned to the product).
  3. 3. CONCEPTUAL CONNECTION Discuss how this approach to assigning conversion costs can improve delivery time performance.

1.

To determine

Calculate theoretical conversion cost per unit.

Explanation

Cycle Time:

Cycle time is the activity performance measure that calculates the duration of time which is required to manufacture one unit of product.

Use the following formula to calculate the theoretical conversion cost per unit:

Theoretical conversion cost per unit=(Theoretical rate1×Theoretical cycle time)

Substitute $4.50 for theoretical rate and 30 minutes for theoretical cycle time in the above formula.

Theoretical conversion cost per unit=$4

2.

To determine

Calculate the applied conversion cost per unit.

3.

To determine

Explain the positive effects of assigning conversion costs to deliver time performance.

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