Reconfigurable Manufacturing System (RMS) is a new manufacturing paradigm that aims to produce a great variety of products and to respond effectively to the changes in the market by providing the required capacity and functionality at any time. The main issue in RMS is the grouping of parts/products into part families and machines into cells. The system is reconfigured between the productions of each family. The distinct characteristics of RMS are enabled and implemented through Reconfigurable Machine Tools (RMTs), which consist of basic and auxiliary machine modules. In the present work, the graphical-based (dynamic programming) approach is used for selecting the best operational sequence for part and best machine for operation. The formation of part families and machine cells for manufacturing parts is done by hierarchical clustering. Each machine consists of basic and auxiliary modules. Machine cells are formed based on the similarity of auxiliary modules. The two objectives considered are minimization of operational time and cost of manufacturing the product.