Question
Therapy Instruments uses a manufacturing costing system with one direct-cost category (direct materials) and three indirect-cost categories: In response to competitive pressures at the end
Therapy Instruments uses a manufacturing costing system with one direct-cost category (direct materials) and three indirect-cost categories:
In response to competitive pressures at the end of 2016, Therapy Instruments used value-engineering techniques to reduce manufacturing costs. Actual information for 2016
and 2017 is as follows:
Cost per engineering change
Direct material cost per unit
Mfg cost per unit in 2016
Ratio for reduction of target cost per unit
Target ratio of 2016's cost for 2017
Drop down options:
Increased machine-hours per unit (cost driver)
Increased the cost per unit in each of the four cost categories
Increased the number of engineering changes made (cost driver)
Reduced machine-hours per unit (cost driver)
Reduced the cost per unit in each of the four cost categories
Reduced the number of engineering changes made (cost driver)
a. b. c. Setup, production-order, and materials-handling costs that vary with the number of batches Manufacturing-operations costs that vary with machine-hours Costs of engineering changes that vary with the number of engineering changes made Setup, production-order, and materials-handling costs per batch Total manufacturing operations cost per machine-hour Cost per engineering change $ S $ 2016 8,700 $ 58 $ 18,000 $ 2017 8,000 48 12,500 The management of Therapy Instruments wants to evaluate whether value engineering has succeeded in reducing the target manufacturing cost per unit of one of its products, HJ6, by 5%. Actual results for 2016 and 2017 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 Actual Results Actual Results for 2016 for 2017 3,000 4,000 2,000 $ 1,600 60 20,700 20,400 Requirements 1 and 2. Calculate the manufacturing cost per unit of HJ6 in 2016, then in 2017. (Round your answers to the nearest whole dollar.) 2016 cost per unit 2017 cost per unit Direct materials Batch-level costs Mfg. operations costs Engineering change costs Total Requirement 3. Did Therapy Instruments achieve the target manufacturing cost per unit for HJ6 in 2017? Explain. Begin by computing the target manufacturing cost per unit for HJ6 in 2017. Determine the formula, then complete the computation. (Abbreviation used: mfg = manufacturing. Enter any ratios used in decimal form to two decimal places, XX. Round your final answer to the nearest whole dollar.) Target manufacturing cost per unit v = Requirement 5. What challenges might managers at Therapy Instruments encounter in achieving the target cost? How might they overcome these challenges? Therapy's managers might encounter the following challenges in achieving the target costs: (Select all that apply.) A. Organizational conflicts may develop as the burden of cost cutting falls unequally on different business functions in the company's value chain. B. A product may be pushed through development not allowing alternative designs on manufactured products. C. Employees may feel the severe cost cutting may result in quality problems that they will then be blamed for such as not making the necessary engineering changes. OD. Employees may feel they are not being encouraged to attain target costs to will work well below standarde To overcome these challenges, managers should: (Select all that apply.) A. Encourage employee participation and engagement B. Clearly communicate goals and the strategy behind them. I C. Ensure competitive pricing of products and services provided OD. Focus on perfecting products and services
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