Techno 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, Techno Instruments used value-engineering techniques to reduce manufacturing costs. Actual information for 2016 and 2017 is as follows: 2016 2017 Setup, production-order, and materials-handling costs per batch $8,600 $7,800 Total manufacturing-operations cost per machine-hour $59 $53 Cost per engineering change $18,750 $14,000 The management of Techno Instruments wants to evaluate whether value engineering has succeeded in reducing the target manufacturing cost per unit of one of its products, HJ6, by 20%. Actual results for 2016 and 2017 for HJ6 are: Actual Results for 2016 Actual Results for 2017 Units of HJ6 produced 6,000 7,000 Direct material cost per unit of HJ6 $1,800 $1,400 Total number of batches required to produce HJ6 80 90 Total machine-hours required to produce HJ6 39,600 36,400 Number of engineering changes made 16 10 1. Calculate the manufacturing cost per unit of HJ6 in 2016. 2. Calculate the manufacturing cost per unit of HJ6 in 2017. 3. Did Techno Instruments achieve the target manufacturing cost per unit for HJ6 in 2017? Explain.

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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Techno

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,

Techno

Instruments used value-engineering techniques to reduce manufacturing costs. Actual information for

2016

and

2017

is as follows:

	2016	2017
Setup, production-order, and materials-handling costs per batch	$8,600	$7,800
Total manufacturing-operations cost per machine-hour	$59	$53
Cost per engineering change	$18,750	$14,000

The management of Techno Instruments wants to evaluate whether value engineering has succeeded in reducing the target manufacturing cost per unit of one of its products, HJ6, by 20%. Actual results for 2016 and 2017 for HJ6 are:

	Actual Results for 2016	Actual Results for 2017
Units of HJ6 produced	6,000	7,000
Direct material cost per unit of HJ6	$1,800	$1,400
Total number of batches required to produce HJ6	80	90
Total machine-hours required to produce HJ6	39,600	36,400
Number of engineering changes made	16	10

1.	Calculate the manufacturing cost per unit of HJ6 in 2016.
2.	Calculate the manufacturing cost per unit of HJ6 in 2017.
3.	Did Techno Instruments achieve the target manufacturing cost per unit for HJ6 in 2017? Explain.
4.	Explain how Techno Instruments reduced the manufacturing cost per unit of HJ6 in 2017.
5.	What challenges might managers at Techno Instruments encounter in achieving the target cost? How might they overcome these challenges?

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