Tavarek Industries Has the Theoretical Capability to Produce 127,500 Units

question 118

Essay

Tavarek Industries has the theoretical capability to produce 127,500 units per month but currently produces 102,000 units. The conversion cost for the month is $3,750,000. There are 8,500 production hours available within the plant per month. In addition to processing time, to produce a unit takes 15 minutes of move time and 10 minutes of wait time.
Required:
1. Compute the theoretical and actual velocities per hour
2. Compute the theoretical and actual cycle times (minutes per unit produced)
3. Compute the current MCE

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Definitions:

Bargain Purchase Option

An option in a lease agreement that allows the lessee to purchase the leased asset at the end of the lease term at a price significantly below its expected fair market value.

Executory Costs

Executory costs are expenses associated with fulfilling the terms of a contract, typically not included in the initial acquisition cost of an asset.

Guaranteed Residual Value

The minimum future value of an asset as guaranteed by a third party or agreement upon the asset's lease end.

Initial Direct Costs

Initial Direct Costs are expenses directly associated with negotiating and arranging a lease that are not included in the net investment in the lease.