Posting involves a. transferring information from the income ...

[Caiter2013]

Posting involves
 a. transferring information from the income statement to the statement of owner's equity.
   b. transferring information from ledger to the journal.
   c. transferring information from the ledger to the balance sheet.
   d. transferring information from the journal to the ledger.

Question 2

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.
 
  Actual results for 2012 and 2013 for HJ6 are:
 
  Required:
  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?

[uniquea123]

Answer to Question 1

d

Answer to Question 2

1. and 2. Manufacturing costs of HJ6 in 2012 and 2013 are as follows:

2012 2013
Per Unit Per Unit
Total (2) = Total (4) =
(1) (1)  2,700 (3) (3)  4,600
Direct materials, 1,400  2,700; 1,300  4,600 3,780,000 1,400 5,980,000 1,300
Batch-level costs, 8,900  60; 8,000  70 534,000 198 560,000 122
Manuf. operations costs, 64  20,000;
48  30,000 1,280,000 474 1,440,000 313
Engineering change costs, 16,000  24;
8,000  7 384,000 142 56,000 12
Total 5,978,000 2,214 8,036,000 1,747

3. =  95
= 2,214  0.95 = 2,103

Actual manufacturing cost per unit of HJ6 in 2013 was 1,747. Hence, Neuro did achieve its target manufacturing cost per unit.

4. To reduce the manufacturing cost per unit in 2013, Neuro reduced the cost per unit in each of the four cost categoriesdirect materials costs, batch-level costs, manufacturing operations costs, and engineering change costs. It also reduced machine-hours and number of engineering changes madethe quantities of the cost drivers. In 2012, Neuro used 7.407 machine-hours per unit of HJ6 (20,000 machine-hours  2,700 units). In 2013, Neuro used 6.522 machine-hours per unit of HJ6 (30,000 machine-hours  4,600 units). Neuro reduced engineering changes from 24 in 2012 to 7 in 2013. Neuro achieved these gains through value engineering activities that retained only those product features that customers wanted while eliminating nonvalue-added activities and costs.

5. Neuro's managers might encounter the following challenges in achieving the target costs:
 Employees may feel they are being pushed too hard to attain target costs. The actual costs in 2013 are well below the target costs.
 Employees may feel that the severe cost cutting may result in quality problems that they will then be blamed for such as not making the necessary engineering changes
 Organizational conflicts may develop as the burden of cost cutting falls unequally on different business functions in the company's value chain
To overcome these challenges, managers should: (1) encourage employee participation and engagement; (2) focus on the customer; (3) clearly communicate goals and the strategy behind them; and (4) set cost-cutting targets for all value-chain functions to encourage a culture of teamwork and cooperation.