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Target costs, effect of product-design changes on product costs. Neuro 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 2016, Neuro Instruments used value-engineering tech- niques to reduce manufacturing costs. Actual information for 2016 and 2017 is as follows: 2016 2017 Setup, production-order, and materials-handling costs per batch $ 8,900 $8,000 $ 48 $16,000 $8,000 $ 64 Total manufacturing-operations cost per machine-hour Cost per engineering change The management of Neuro 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: Actual Results for 2016 Actual Results for 2017 Units of HJ6 produced Direct material cost per unit of HJ6 Total number of batches required to produce HJ6 2,700 4,600 $ 1,400 $ 1,300 60 70 Total machine-hours required to produce HJ6 Number of engineering changes made 20,000 30,000 24

Target costs, effect of product-design changes on product costs. Neuro 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 2016, Neuro Instruments used value-engineering tech- niques to reduce manufacturing costs. Actual information for 2016 and 2017 is as follows: 2016 2017 Setup, production-order, and materials-handling costs per batch $ 8,900 $8,000 $ 48 $16,000 $8,000 $ 64 Total manufacturing-operations cost per machine-hour Cost per engineering change The management of Neuro 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: Actual Results for 2016 Actual Results for 2017 Units of HJ6 produced Direct material cost per unit of HJ6 Total number of batches required to produce HJ6 2,700 4,600 $ 1,400 $ 1,300 60 70 Total machine-hours required to produce HJ6 Number of engineering changes made 20,000 30,000 24

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter15: Lean Accounting And Productivity Measurement
Section: Chapter Questions
Problem 18E: Lean manufacturing uses value streams to produce a family of products that require the same...
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What challenges might managers at Neuro Instruments encounter in achieving the target cost? How might they overcome these challenges?

Target costs, effect of product-design changes on product costs. Neuro 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 2016, Neuro Instruments used value-engineering tech- niques to reduce manufacturing costs. Actual information for 2016 and 2017 is as follows: 2016 2017 Setup, production-order, and materials-handling costs per batch $ 8,900 $8,000 $ 48 $16,000 $8,000 $ 64 Total manufacturing-operations cost per machine-hour Cost per engineering change The management of Neuro 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: Actual Results for 2016 Actual Results for 2017 Units of HJ6 produced Direct material cost per unit of HJ6 Total number of batches required to produce HJ6 2,700 4,600 $ 1,400 $ 1,300 60 70 Total machine-hours required to produce HJ6 Number of engineering changes made 20,000 30,000 24
Transcribed Image Text:Target costs, effect of product-design changes on product costs. Neuro 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 2016, Neuro Instruments used value-engineering tech- niques to reduce manufacturing costs. Actual information for 2016 and 2017 is as follows: 2016 2017 Setup, production-order, and materials-handling costs per batch $ 8,900 $8,000 $ 48 $16,000 $8,000 $ 64 Total manufacturing-operations cost per machine-hour Cost per engineering change The management of Neuro 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: Actual Results for 2016 Actual Results for 2017 Units of HJ6 produced Direct material cost per unit of HJ6 Total number of batches required to produce HJ6 2,700 4,600 $ 1,400 $ 1,300 60 70 Total machine-hours required to produce HJ6 Number of engineering changes made 20,000 30,000 24
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