Target costs, effect of product-design changes on product costs. Neuro Instruments u...

Target costs, effect of product-design changes on product costs. Neuro 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 2012, Neuro Instruments used value-engineering techniques to reduce manufacturing costs. Actual information for 2012 and 2013 is as follows:

The management of Neuro 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%.

Required

Required Actual results for 2012 and 2013 for HJ6 are:

1. Calculate the manufacturing cost per unit of HJ6 in 2012.

2. Calculate the manufacturing cost per unit of HJ6 in 2013.

3. Did Neuro Instruments achieve the target manufacturing cost per unit for HJ6 in 2013? Explain.

4. Explain how Neuro Instruments reduced the manufacturing cost per unit of HJ6 in 2013.

5. What challenges might managers at Neuro Instruments encounter in achieving the target cost? How

might they overcome these challenges?