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 2006, Medical Instruments used value-engineering techniques to reduce manufacturing costs. Actual information for 2006 and 2007 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, HJ6, by 10%. Actual results for 2006 and 2007 for HJ6 are:

Required
1. Calculate the manufacturing cost per unit of HJ6 in 2006.
2. Calculate the manufacturing cost per unit of HJ6 in 2007.
3. Did Medical Instruments achieve the target manufacturing cost per unit for HJ6 in 2007? Explain.
4. Explain how Medical Instruments reduced the manufacturing cost per unit of HJ6 in 2007?

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2006 2007 Setup, production-order, and materials-handling 8,000 7,500 costs per batch Total manufacturing-operations cost per machine-hour Cost per engineering change $55 $50 $12,000 $10,000 Actual Results for 2006 Actual Results for 2007 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 3,500 $1,200 70 21,000 14 4,000 $1,100 80 22,000 10