A company has the following data for one of its manufacturing cells: Theoretical velocity 20 units per hour Productive minutes available per year 1,200,000 Annual conversion cost $4,800,000 Actual velocity 15 units per hour Actual cycle time = 60 minutes/15 units = 4 minutes per unit Standard cost per minute = $4 per minute Actual conversion cost per unit = $4 × 4 = $16 per unit Theoretical cycle time = 60 minutes/20 units = 3 units per hour Theoretical conversion cost per unit = $4 × 3 = $12 per unit What we can see from this example is that the company has an incentive to reduce cycle time. It actually takes 4 minutes per unit but it could take as little as 3 minutes per unit. If cycle time could be reduced, the number of units produced could be increased and conversion cost per unit could be decreased. If actual cycle time were decreased to 3.5 minutes per unit, actual velocity (rounded to the nearest whole unit) would be ________ units per hour, and actual conversion cost would be __________ per unit. Manufacturing cycle efficiency (MCE) is another measure of operating efficiency. MCE = Processing time/(Processing time + Move time + Inspection time + Waiting time + Other non-value-added time) Example: A company provided the following information for one of its products for each hour of production: Actual velocity: 50 units per hour Move time: 10 minutes Inspection time: 5 minutes Rework time: 15 minutes Processing time = 60 minutes – 10 minutes – 5 minutes – 15 minutes = 30 minutes MCE = 30/60 = 0.5 This MCE of 0.5 tells the company that 50% of the time is value-added processing time and the other 50% is waste. The company now has an incentive to reduce the non-value-added time. Suppose that quality were increased and rework time was reduced to 5 minutes. The new MCE (rounded to two significant digits) would be __________.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
A company has the following data for one of its manufacturing cells:
| Theoretical velocity | 20 units per hour |
| Productive minutes available per year | 1,200,000 |
| Annual conversion cost | $4,800,000 |
| Actual velocity | 15 units per hour |
Actual cycle time = 60 minutes/15 units = 4 minutes per unit
Standard cost per minute = $4 per minute
Actual conversion cost per unit = $4 × 4 = $16 per unit
Theoretical cycle time = 60 minutes/20 units = 3 units per hour
Theoretical conversion cost per unit = $4 × 3 = $12 per unit
What we can see from this example is that the company has an incentive to reduce cycle time. It actually takes 4 minutes per unit but it could take as little as 3 minutes per unit. If cycle time could be reduced, the number of units produced could be increased and conversion cost per unit could be decreased. If actual cycle time were decreased to 3.5 minutes per unit, actual velocity (rounded to the nearest whole unit) would be ________ units per hour, and actual conversion cost would be __________ per unit.
Manufacturing cycle efficiency (MCE) is another measure of operating efficiency.
MCE = Processing time/(Processing time + Move time + Inspection time + Waiting time + Other non-value-added time)
Example: A company provided the following information for one of its products for each hour of production:
| Actual velocity: | 50 units per hour |
| Move time: | 10 minutes |
| Inspection time: | 5 minutes |
| Rework time: | 15 minutes |
Processing time = 60 minutes – 10 minutes – 5 minutes – 15 minutes = 30 minutes MCE = 30/60 = 0.5
This MCE of 0.5 tells the company that 50% of the time is value-added processing time and the other 50% is waste. The company now has an incentive to reduce the non-value-added time. Suppose that quality were increased and rework time was reduced to 5 minutes. The new MCE (rounded to two significant digits) would be __________.
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