Strategic Management Accounting Assignment Question -
Connie Co. manufactures conduit for use in commercial building construction. Connie Co. has one product, LiquidTight. Connie's costing system includes direct materials and three indirect cost categories. Indirect cost driver data from the two most recent periods are as follows:
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2011
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2012
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Cost per setup
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$8,000
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$7,500
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Manufacturing cost per machine hour
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$55
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$50
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Cost per engineering change
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$12,000
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$10,000
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In response to competitive pressures at the end of 2011, Connie Co.'s management set a target manufacturing cost per unit reduction of 10% to be achieved by the end of 2012. At the beginning of 2012Connie Co. used value-engineering techniques to focus on the reduction of manufacturing costs. Management wants to evaluate whether value engineering has succeeded in reducing the target manufacturing cost per unit by 10%. Actual results for the LiquidTight product are as follows:
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2011
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2012
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Units produced
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3,500
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4,000
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Direct material cost / unit
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$1,200
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$1,100
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Number of set-ups
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70
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80
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Number of machine hours used
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21,000
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22,000
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Number of engineering changes
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14
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10
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Required - show all of your calculations to support your answers:
1. Calculate the manufacturing cost per unit of LiquidTight in 2011.
2. Calculate the manufacturing cost per unit of LiquidTight in 2012.
3. Did Connie Co. achieve the target manufacturing cost per unit for LiquidTight in 2012?
4. Discuss the why the manufacturing cost per unit of LiquidTight changed from 2011 to 2012. What do you believe are the primary reasons for this change in cost?
5. Discuss the strategic implications of the value engineering techniques implement at Connie Co.