Lander Parts, Inc., produces various automobile parts. In one plant, Lander has a manufacturing cell with the theoretical capability to produce 450,000 fuel pumps per quarter. The conversion cost per quarter is $9,000,000. There are 150,000 production hours available within the cell per quarter.
1. Compute the theoretical velocity (per hour) and the theoretical cycle time (minutes per unit produced).
2. Compute the ideal amount of conversion cost that will be assigned per subassembly.
3. Suppose the actual time required to produce a fuel pump is 40 minutes. Compute the amount of conversion cost actually assigned to each unit produced. What happens to product cost if the time to produce a unit is decreased to 25 minutes? How can a ﬁrm encourage managers to reduce cycle time? Finally, discuss how this approach to assigning conversion cost can improve delivery time.
4. Assuming the actual time to produce one fuel pump is 40 minutes, calculate MCE. How much non-value-added time is being used? How much is it costing per unit?
5. Cycle time, velocity, MCE, conversion cost per unit (theoretical conversion rate × actual conversion time), and non-value-added costs are all measures of performance for the cell process. Discuss the incentives provided by these measures.