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 $ 3.90 per part Manufacturing supervision Hours of machine time $ 14.95 per hour Assembly Number of parts $ 4.05 per part Machine setup Each setup $ 57.25 per setup Inspection and testing Logged hours $ 46.25 per hour Packaging Logged hours $ 20.25 per hour LCI currently sells the B-13 model for $5,150 and the F-32 model for $5,420. Manufacturing costs and activity usage for the two products are as follows: B-13 F-32 Direct materials $ 165.25 $ 76.20 Number of parts 175 135 Machine hours 8.65 4.35 Inspection time 3.20 2.30 Packaging time 1.65 1.25 Setups 6 5 The profit margin based on manufacturing cost for model F-32 is:
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 | $ | 3.90 | per part |
| Manufacturing supervision | Hours of machine time | $ | 14.95 | per hour |
| Assembly | Number of parts | $ | 4.05 | per part |
| Machine setup | Each setup | $ | 57.25 | per setup |
| Inspection and testing | Logged hours | $ | 46.25 | per hour |
| Packaging | Logged hours | $ | 20.25 | per hour |
LCI currently sells the B-13 model for $5,150 and the F-32 model for $5,420.
| B-13 | F-32 | ||||||
| Direct materials | $ | 165.25 | $ | 76.20 | |||
| Number of parts | 175 | 135 | |||||
| Machine hours | 8.65 | 4.35 | |||||
| Inspection time | 3.20 | 2.30 | |||||
| Packaging time | 1.65 | 1.25 | |||||
| Setups | 6 | 5 | |||||
The profit margin based on manufacturing cost for model F-32 is:
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