Harcourt Manufacturing (HM) has the capacity to produce 11,800 fax machines per year. HM currently produces and sells 8,800 units per year. The fax machines normally sell for $280 each. Modem Products has offered to buy 3,800 fax machines from HM for $150 each. Unit-level costs associated with manufacturing the fax machines are $51 each for direct labor and $76 each for direct materials. Product-level and facility-level costs are $68,000 and $83,000, respectively. How much would profit increase (decrease) if HM accepted this special order?

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. Required: 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.

Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 65 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are 12,960,000 per year. The total labor minutes available are 1,440,000. During the year, the cell was able to produce 0.6 units of the product per hour. Suppose also that production incentives exist to minimize unit product costs. Required: 1. Compute the theoretical conversion cost per unit. 2. Compute the applied conversion cost per minute (the amount of conversion cost actually assigned to the product). 3. Discuss how this approach to assigning conversion cost can improve delivery time performance. Explain how conversion cost acts as a performance driver for on-time deliveries.

Aril Industries is a multiproduct company that currently manufactures 30,000 units of Part 730 each month for use in production. The facilities now being used to produce Part 730 have fixed monthly overhead costs of 150,000 and a theoretical capacity to produce 60,000 units per month. If Aril were to buy Part 730 from an outside supplier, the facilities would be idle, and 40% of fixed costs would continue to be incurred. There are no alternative uses for the facilities. The variable production costs of Part 730 are 11 per unit. Fixed overhead is allocated based on planned production levels. If Aril Industries continues to use 30,000 units of Part 730 each month, it would realize a net benefit by purchasing Part 730 from an outside supplier only if the suppliers unit price is less than: a. 12.00. b. 12.50. c. 13.00. d. 14.00.