CYCLE TIME, VELOCITY, PRODUCT COSTING
Goldman Company has a JIT system in place. Each manufacturing cell is dedicated to the production of a single product or major subassembly. One cell, dedicated to the pro- duction of telescopes, has four operations: machining, finishing, assembly, and qualifying (testing).
For the coming year, the telescope cell has the following budgeted costs and cell time (both at theoretical capacity):
Budgeted conversion costs $7,500,000
Budgeted raw materials $9,000,000
Cell time 12,000 hours
Theoretical output 90,000 telescopes
During the year, the following actual results were obtained:
Actual conversion costs $7,500,000
Actual materials $7,800,000
Actual cell time 12,000 hours
Actual output 75,000 telescopes
Required (Round answers to two decimal places):
1. Compute the velocity (number of telescopes per hour) that the cell can theoretically achieve. Now, compute the theoretical cycle time (number of hours or minutes per telescope) that it takes to produce one telescope.
2. Compute the actual velocity and the actual cycle time.
3. Compute the budgeted conversion costs per minute. Using this rate, compute the conversion costs per telescope if theoretical output is achieved. Using this measure, compute the conversion costs per telescope for actual output. Does this product costing approach provide an incentive for the cell manager to reduce cycle time? Explain.