12-18 Target costs, effect of product-design changes on product costs. Medical Instruments uses a man- ufacturing 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: Setup, production order, and materials-handling costs per batch 2014 $ 8,000 2015 $ 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 succeed reducing the target manufacturing cost per unit of one of its products, HJ6, by 10%. Actual results for 2014 and 2015 for HJ6 are: Units of HJ6 produced Direct material cost per unit of HJ6 Total number of batches required to produce HJ6 Total machine-hours required to produce HJ6 Number of engineering changes made Required 1. Calculate the manufacturing cost per unit of HJ6 in 2014. 2. Calculate the manufacturing cost per unit of HJ6 in 2015. Actual Actual Results Results for 2014 for 2015 3,500 4,000 $1,200 $1,100 70 80 21,000 22,000 14 10 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