6. 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 Erickson’s 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.
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