Refer to exercises 4 and 5. Controller Michael Bender is surprised by the increase in cost of the deluxe model under ABC. Market research shows that for the deluxe rim to provide a reasonable profit, Erickson will have to meet a target manufacturing cost of $454 per rim. A value engineering study by Ericksons employees suggests that modifications to the finishing process could cut finishing cost from $30 to $20 per hour and reduce the finishing direct labor hours per deluxe rim from 4.5 hours to 4 hours. Direct materials would remain unchanged at $51 per rim, as would direct labor at $54 per rim. The materials handling, machine setup, and insertion of parts activity costs also would remain the same. Requirement Would implementing the value engineering recommendation enable Erickson to achieve its target cost for the deluxe rim?

Activity Allocation Base Materials handling Number of parts Machine setup Number of setups Insertion of parts Number of parts Finishing Finishing direct labor hours Cost Allocation Rate 6.00 per part 600.00 per setup 24.00 per part 30.00 per hour