Question
Connie Co. manufactures conduit for use in commercial building construction. Connie Co. has one product, LiquidTight. Connies costing system includes direct materials and three indirect
Connie Co. manufactures conduit for use in commercial building construction. Connie Co. has one product, LiquidTight. Connies costing system includes direct materials and three indirect cost categories. Indirect cost driver data from the two most recent periods are as follows:
2017 2018
Cost per setup $8,000 $7,500
Manufacturing cost per machine hour $ 55 $ 50
Cost per engineering change $12,000 $10,000
In response to competitive pressures at the end of 2017, Connie Co.s management set a target manufacturing cost per unit reduction of 10% to be achieved by the end of 2018. At the beginning of 2018 Connie Co. used value-engineering techniques to focus on the reduction of manufacturing costs. Management wants to evaluate whether value engineering has succeeded in reducing the target manufacturing cost per unit by 10%. Actual results for the LiquidTight product are as follows:
2017 | 2018 | ||
Units produced | 3,500 | 4,000 | |
Direct material cost / unit | $1,200 | $1,100 | |
Number of set-ups | 70 | 80 | |
Number of machine hours used | 21,000 | 22,000 | |
Number of engineering changes | 14 | 10 |
1. Calculate the manufacturing cost per unit of LiquidTight in 2017.
2. Calculate the manufacturing cost per unit of LiquidTight in 2018.
3. Did Connie Co. achieve the target manufacturing cost per unit for LiquidTight in 2018?
4. Discuss the why the manufacturing cost per unit of LiquidTight changed from 2017 to 2018. What do you believe are the primary reasons for this change in cost?
5. Discuss the strategic implications of the value engineering techniques implement at Connie Co.
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