At the beginning of the current year,Smith Company installed a JIT purchasing and manufacturing system.The following information has been gathered about one of the company's products. $\begin{array}{lr}
\text { Theoretical annual capacity } & 4,000 \
\text { Actual production } & 3,600 \
\text { Production hours available } & 2,000 \
\text { Actual cost per unit } & \$ 28
\end{array}$

-What is the ideal conversion cost per unit?
A)$14 per unit
B)$15.55 per unit
C)$50.90 per unit
D)$56 per unit

Question

At the beginning of the current year,Smith Company installed a JIT purchasing and manufacturing system.The following information has been gathered about one of the company's products. $\begin{array}{lr}
\text { Theoretical annual capacity } & 4,000 \
\text { Actual production } & 3,600 \
\text { Production hours available } & 2,000 \
\text { Actual cost per unit } & \$ 28
\end{array}$
 
-What is the ideal conversion cost per unit?
A)$14 per unit
B)$15.55 per unit
C)$50.90 per unit
D)$56 per unit

Quizplus · Accepted Answer

The ideal conversion cost per unit is the total conversion cost divided by the theoretical annual capacity. The total conversion cost is the actual cost per unit minus the material cost per unit. The material cost per unit is not given, so we cannot calculate the ideal conversion cost per unit exactly. However, we can calculate an upper bound on the ideal conversion cost per unit by assuming that the material cost per unit is zero. In this case, the ideal conversion cost per unit would be $28. The actual conversion cost per unit is the actual cost per unit minus the material cost per unit. The actual conversion cost per unit is not given, but we can calculate a lower bound on the actual conversion cost per unit by assuming that the material cost per unit is $14. In this case, the actual conversion cost per unit would be $14. Therefore, the ideal conversion cost per unit is between $14 and $28. The only choice that falls within this range is A) $14 per unit.

At the Beginning of the Current Year,Smith Company Installed a JIT