Manufacturing continues to face escalated cost challenges as the global economy grows. In order to gain competitive advantage among its rivals, manufacturing firms are in a constant strive to lower their manufacturing costs compared to their competitors. This paper introduces a mathematical optimization model based on Activity Based Costing (ABC) method for Reconfigurable Manufacturing Systems (RMS) taking into consideration the bi- directional relationship between hourly rates and annual hours on each machine/workcentre. The output from the model will be the optimum hourly rates, decision on which jobs to accept or reject and decision on the financial feasibility of reconfiguration. Reconfiguration in this paper describes both system-level reconfiguration (investing in additional machining equipment) and/or, machine-level reconfiguration (extra module to an existing equipment). The model will be applied on a real life case study of a global Original Equipment Manufacturer of Machinery. The novelty of the proposed model is the incorporation of the bi-directional relationship between hourly rates and annual hours on each machine and provides a managerial decision making tool in terms of investment level required to pursue new business, and gaining competitive advantage over rivals.