Standard costs of products produced in the same production cell.
Colt Controls has a lean production cell dedicated to producing product A, a small circuit board. They have decided to produce a second circuit board, product B, in the same production cell. The cell processes and the process times per circuit board are shown in the figure below.
The circuit boards are produced using one-piece flow. A single board of either type is completed at one station before moving on to the next workstation. At any time, one circuit board is being worked on in each of the four workstations. Ten completed boards emerge from the cell each hour.
Like most manufacturing companies, Colt Controls uses standard costing. Product A and product B both have a standard direct material cost of $42.00 per circuit board. The standard direct labor cost is $24.23 per direct labor hour and the standard overhead cost is 600% of direct labor dollars (or $145.38 per direct labor hour). The standard direct labor time per circuit board is equal to the standard processing time in each process.
The expected total conversion cost (direct labor and overhead) to run the production cell for running the production cell is $580 per hour.
Questions:
1. What is the total standard cost for product A? Show your calculations.
2. What is the total standard cost for product B? Show your calculations.
3. Can Colt Controls produce more than 10 circuit boards per hour? Explain how they can, or why they cannot.
4. What would the cost be for product A and product B if Colt Controls assigned conversion costs based on throughput instead of using standard costing?