Question

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	160.00	120.00
Machine hours	7.90	4.20
Inspection time	1.70	0.80
Packaging time	0.90	0.50
Setups	3.00	2.00

The profit margin based on manufacturing cost for model B-13 is:

$481.68.

$314.69.

$239.09.

$317.18.

$338.16.

Answer 1

Particulars	Amount
Selling price	1,775.00
Costs:
Direct materials	164.50
Materials handling	384.00
Assembly	528.00
Machine hours	116.92
Inspection cost	77.35
Packaging time	17.55
Set ups	169.50
Total costs	1,457.82
Profit margin	317.18