Medical Instruments uses a manufacturing costing system with one direct cost category (direct materials) and three indirect

Question:

Medical Instruments uses a manufacturing costing system with one direct cost category (direct materials) and three indirect cost categories:

a. Setup, production order, and materials-handling costs that vary with the number of batches.

b. Manufacturing operations costs that vary with machine-hours.

c. Costs of engineering changes that vary with the number of engineering changes made.

In response to competitive pressures at the end of 2014, Medical Instruments used value engineering techniques to reduce manufacturing costs. Actual information for 2014 and 2015 is:

2014 2015

Setup, production order, and materials-handling costs per batch ........... $ 8,000 ......... $ 7,500

Total manufacturing-operations cost per machine-hour ........................... 55 ............... 50

Cost per engineering change ..................................................... 12,000 ........... 10,000

The management of Medical Instruments wants to evaluate whether value engineering has succeeded in reducing the target manufacturing cost per unit of one of its products, HJ6, by 10%.

Actual results for 2014 and 2015 for HJ6 are:

Actual ResultsActual Results

for 2014for 2015

Units of HJ6 produced ....................................... 3,500 ..................... 4,000

Direct material cost per unit of HJ6 ....................... $1,200 ..................... $1,100

Total number of batches required to produce HJ6 ........... 70 .......................... 80

Total machine-hours required to produce HJ6 ........... 21,000 .................... 22,000

Number of engineering changes made ......................... 14 ......................... 10

Required

1. Calculate the manufacturing cost per unit of HJ6 in 2014.

2. Calculate the manufacturing cost per unit of HJ6 in 2015.

3. Did Medical Instruments achieve the target manufacturing cost per unit for HJ6 in 2015? Explain.

4. Explain how Medical Instruments reduced the manufacturing cost per unit of HJ6 in 2015.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Cost Accounting A Managerial Emphasis

ISBN: 978-0133138443

7th Canadian Edition

Authors: Srikant M. Datar, Madhav V. Rajan, Charles T. Horngren, Louis Beaubien, Chris Graham

Question Posted: