Target costs, effect of product-design changes on product 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 2008, Medical Instruments used value-engineering techniques to reduce manufacturing costs. Actual information for 2008 and 2009 is:

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, KJ6, by 10%.

Actual results for 2008 and 2009 for HJ6 are:

1. Calculate the manufacturing cost per unit of HJ6 in 2008.

2. Calculate the manufacturing cost per unit of HJ6 in 2009.

3. Did Medical Instruments achieve the target manufacturing cost per unit for HJ6 in 2009? Explain.

4. Explain how Medical Instruments reduced the manufacturing cost per unit of HJ6 in2009.

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2009 2008 Setup, production-order, and materials-handling costs per batch Total manufacturing-operations cost per machine-hour Cost per engineering change S 7,500 $ 8,000 $ 55 $ 50 $12,000 $10,000