Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13). The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools: Cost Pools Allocation Base Costing Rate Materials handling Number of parts $ 2.40 per part Manufacturing supervision Hours of machine time $ 14.80 per hour Assembly Number of parts $ 3.30 per part Machine setup Each setup $ 56.50 per setup Inspection and testing Logged hours $ 45.50 per hour Packaging Logged hours $ 19.50 per hour LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing costs and activity usage for the two products are as follows: B-13 F-32 Direct materials $ 164.50 $ 75.60 Number of parts 160 120 Machine hours 7.90 4.20 Inspection time 1.70 0.80 Packaging time 0.90 0.50 Setups 3 2 If the market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively, and Lens Care wants to maintain market share and profitability, what is the target cost for B-13 and F-32 (round to nearest whole dollar)? B-13 F-32 A) $ 80 $ 120 B) $ 1,378 $ 125 C) $ 318 $ 856 D) $ 1,378 $ 856 E) $ 318 $ 422
Lens Care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine eyewear (F-32) and another for lenses used in binoculars, cameras, and similar equipment (B-13).
The manufacturing cost of each unit is calculated using activity-based costing, using the following manufacturing cost pools:
Cost Pools | Allocation Base | Costing Rate | ||
Materials handling | Number of parts | $ | 2.40 | per part |
Manufacturing supervision | Hours of machine time | $ | 14.80 | per hour |
Assembly | Number of parts | $ | 3.30 | per part |
Machine setup | Each setup | $ | 56.50 | per setup |
Inspection and testing | Logged hours | $ | 45.50 | per hour |
Packaging | Logged hours | $ | 19.50 | per hour |
LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220.
B-13 | F-32 | ||||||
Direct materials | $ | 164.50 | $ | 75.60 | |||
Number of parts | 160 | 120 | |||||
Machine hours | 7.90 | 4.20 | |||||
Inspection time | 1.70 | 0.80 | |||||
Packaging time | 0.90 | 0.50 | |||||
Setups | 3 | 2 | |||||
If the market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively, and Lens Care wants to maintain market share and profitability, what is the target cost for B-13 and F-32 (round to nearest whole dollar)?
B-13 | F-32 | ||||||
A) | $ | 80 | $ | 120 | |||
B) | $ | 1,378 | $ | 125 | |||
C) | $ | 318 | $ | 856 | |||
D) | $ | 1,378 | $ | 856 | |||
E) | $ | 318 | $ | 422 | |||
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