=+7-19 K Target costs, effect of product design changes on product costs OBJECTIVE 2 Medical Instruments Ltd

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=+7-19 K Target costs, effect of product design changes on product costs OBJECTIVE 2 Medical Instruments Ltd uses a manufacturing costing system with one direct cost category (direct materials) and three indirect cost categories:

a set-up, 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 Ltd used value-engineering techniques to reduce manufacturing costs. Actual information for 2014 and 2015 is:

2014 2015 Set-up, 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 Ltd 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 results for 2014 Actual results for 2015 Units of HJ6 produced 3 500 4 000 Direct materials 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.

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Related Book For  book-img-for-question

Cost Accounting A Managerial Emphasis

ISBN: 9781442563377

2nd Edition

Authors: Monte Wynder, Madhav V. Rajan, Srikant M. Datar, Charles T. Horngren, William Maguire, Rebecca Tan

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