Patient Care 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 2011, Patient Care Instruments used value- engineering techniques to reduce manufacturing costs. Actual information for 2011 and 2012 is as follows:

The management of Patient Care 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 2011 and 2012 for HJ6 are:

Required
1. Calculate the manufacturing cost per unit of HJ6 in 2011.
2. Calculate the manufacturing cost per unit of HJ6 in 2012.
3. Did Patient Care Instruments achieve the target manufacturing cost per unit for HJ6 in 2012? Explain.
4. Explain how Patient Care Instruments reduced the manufacturing cost per unit of HJ6 in 2012.
5. What challenges might managers at Patient Care Instruments encounter in achieving the target cost and how might they overcome thesechallenges?

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Setup, production-order, and materials-handling costs per batch Total manufacturing-operations cost per machine-hour Cost per engineering change 2011 $ 8,900 $ 64 $16,000 2012 $8,000 $ 48 $8,000 Actual Results for 2011 Actual Results for 2012 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 2,700 $1,400 60 20,000 24 4,600 1,300 70 30,000