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 |
$ |
4.40 |
per part |
| Manufacturing supervision |
Hours of machine time |
$ |
15.00 |
per hour |
| Assembly |
Number of parts |
$ |
4.30 |
per part |
| Machine setup |
Each setup |
$ |
57.50 |
per setup |
| Inspection and testing |
Logged hours |
$ |
46.50 |
per hour |
| Packaging |
Logged hours |
$ |
20.50 |
per hour |
|
LCI currently sells the B-13 model for $6,275 and the F-32 model
for $6,820. Manufacturing costs and activity usage for the two
products are as follows:
|
B-13 |
|
F-32 |
| Direct materials |
$ |
165.50 |
|
|
$ |
76.40 |
|
| Number of parts |
|
180 |
|
|
|
140 |
|
| Machine hours |
|
8.90 |
|
|
|
4.40 |
|
| Inspection time |
|
3.70 |
|
|
|
2.80 |
|
| Packaging time |
|
1.90 |
|
|
|
1.50 |
|
| Setups |
|
6 |
|
|
|
5 |
|
|
If the market price for B-13 and F-32 are reduced to $6,195 and
$6,695 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) |
$ |
1,043.00 |
|
|
$ |
948.00 |
|
| B) |
$ |
2,341.00 |
|
|
$ |
953.00 |
|
| C) |
$ |
1,281.00 |
|
|
$ |
1,684.00 |
|
| D) |
$ |
2,341.00 |
|
|
$ |
1,684.00 |
|
| E) |
$ |
1,281.00 |
|
|
$ |
1,250.00 |
|
|