Question

Hello,

can you assist with the below and show all work?

Target costs:
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 2017, Medical Instruments used value-engineering techniques to reduce manufacturing costs. Actual information for 2017 and 2018 is
Target costs / product-design changes / product costs                                                                   2017       2018 Total Setup, production order, material handling                                                             8,000    7,500                                                                                 Total Mfg operations costs per machine hour 55          50                                                                                 Costs of engineering changes 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%.
															ACT results 2017 & 2018
Units og HJ6 produced								3500				4000
DM cost per unit								$1200				$1100
Total number of batches required								70				80
Total Machine hours to produce								21000				22000
Number of engineering Changes								14				10

A) calculate the manufacturing cost per unit of HJ6 in 2017

B) calculate the manufacturing cost per unit of HJ6 in 2018

C) Did medical instruments achieve the target manufacturing cost per unit in HJ6 in 2018

Answer 1

A) & B)
Particulars	Year 2017	Year 2018
Direct material cost	$ 4,200,000.00	$        4,400,000.00
Set up, production order and material handling cost	$    560,000.00	$           600,000.00
Manufacturing- operations cost	$ 1,155,000.00	$        1,100,000.00
Cost of engineering change	$    168,000.00	$           100,000.00
Total manufacturing cost	$ 6,083,000.00	$        6,200,000.00
Manufacturing cost per	$        1,738.00	$               1,550.00
c)
Yes, Medical instruments achieve the target manufacturing cost per unit in HJ6 in 2018	10.82%
Target manufacturing cost per unit of HJ6 in 2018 = Manufacturing costs per unit in 2017 × 90% = 1,738 × 0.90 =	$        1,564.20
Actual manufacturing cost per unit of HJ6 in 2018 was 1,550. Hence, Medical Instruments did achieve its target manufacturing cost per unit of  1,564.20.