Cycle Time, Velocity, Product Costing

Echeverria 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 production 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):

Line Item Description	Numerical Value
Budgeted conversion costs	$8,000,000
Budgeted raw materials	$9,250,000
Cell time	14,000 hours
Theoretical output	134,400 telescopes

During the year, the following actual results were obtained:

Line Item Description	Numerical Value
Actual conversion costs	$8,000,000
Actual materials	$7,400,000
Actual cell time	14,000 hours
Actual output	87,500 telescopes

Required:

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. Round your answers to two decimal places. Theoretical velocity fill in the blank 1 of 2 telescopes per hour Theoretical cycle time fill in the blank 2 of 2 minutes per telescope

2. Compute the actual velocity and the actual cycle time. Round your answers to two decimal places. Actual velocity fill in the blank 1 of 2 telescopes per hour Actual cycle time fill in the blank 2 of 2 minutes

3. Conceptual Connection: 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. Round your answers to the nearest cent.

Line Item Description	Amount
Budgeted conversion costs	$fill in the blank 5 per minute
Theoretical conversion costs per telescope	$fill in the blank 6
Actual conversion costs per telescope	$fill in the blank 7

Does this product costing approach provide an incentive for the cell manager to reduce cycle time? Explain.

Yes. By reducing cycle time, the cost per unit can be reduced.Yes. By reducing cycle time, the quality of the product can be improved.No. By reducing the cycle time, the quality will suffer and the cost per unit will increase.No. There is no scope for reduction of cycle time.Yes. By reducing cycle time, the cost per unit can be reduced.