Refer to Exercises 18-17 and 18-19. Controller Michael Bender is surprised by the increase in cost of the deluxe model under ABC

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E18-20 Activity-based management and target cost [10 min]

Refer to Exercises 18-17 and 18-19. 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, Elton will have to meet a target manufacturing
cost of $656 per rim. A value engineering study by Elton’s employees suggests
that modifications to the finishing process could cut finishing cost from $50 to
$40 per hour and reduce the finishing direct labor hours per deluxe rim from
6.5 hours to 6 hours. Direct materials would remain unchanged at $50 per rim, as
would direct labor at $56 per rim. The materials handling, machine setup, and
insertion of parts activity costs also would remain the same.

Requirement

1. Would implementing the value engineering recommendation enable Elton to
achieve its target cost for the deluxe rim?