Bowman Specialists Inc. (BSI) manufactures specialized equipment for polishing o

Question

Bowman Specialists Inc. (BSI) manufactures specialized equipment for polishing optical lenses. There are two models—one (A–25) principally used for fine eyewear and the other (A–10) for lenses used in binoculars, cameras, and similar equipment. The manufacturing cost of each unit is calculated, using activity-based costing, for these manufacturing cost pools: Cost Pools Allocation Base Costing Rate Materials handling Number of parts $ 2.70 per part Manufacturing supervision Hours of machine time $ 23.80 per hour Assembly Number of parts $ 3.45 per part Machine setup Each setup $ 45.80 per setup Inspection and testing Logged hours $ 44.00 per hour Packaging Logged hours $ 21.00 per hour BSI currently sells the A–10 model for $1,310 and the A–25 model for $930. Manufacturing costs and activity usage for the two products follow: A–10 A–25 Direct materials $ 137.76 $ 69.44 Number of parts 124 95 Machine-hours 6.9 4.6 Inspection time 1.3 0.75 Packing time 0.85 0.46 Setups 2.60 1.3 Required: 1. Calculate the product cost and product margin for each product. (Round your answers to 2 decimal places.) 2-a. A new competitor has entered the market for lens-polishing equipment with a superior product at significantly lower prices, $1,095 for the A–10 model and $780 for the A–25 model. To try to compete, BSI has made some radical improvements in the design and manufacturing of its two products. The materials costs and activity usage rates have been decreased significantly: A–10 A–25 Direct materials $ 84.65 $ 45.45 Number of parts 116 87 Machine-hours 6.5 2.6 Inspection time 1.3 0.65 Packing time 0.79 0.26 Setups 1.3 1.3 Calculate the total product costs with the new activity usage data. (Round your answers to 2 decimal places.) 2-b. Can BSI make a positive gross margin with the new costs, assuming that it must meet the price set by the new competitor? Yes No 4. What cost management method might be useful to BSI at this time? Kaizen costing Life-cycle costing Activity-based costing Target costing

Explanation / Answer

1.

2-a

2-b. BSI can make positive gross margin with the new costs as shown below.

4. Target costing

Target costing method might be useful for the company as this will help the company to achieve a perdetermined cost for a product , with continuous improvements in the product design and manufacturing .

A - 25 A - 10 Selling price                    1,310.00              930.00 Direct material 137.76 69.44 Manufacturing cost                    1,120.95              795.93 Product cost                    1,258.71              865.37 Product margin                          51.29                 64.63 Workings: A - 25 A - 10 Cost Pool Allocation Cost per unit Units of Total Cost Units of Total Cost Base of cost driver cost driver cost driver Material handling Number of parts                   2.70 124        334.80 95        256.50 Manufacturing supervision Machine hours                 23.80 6.9        164.22 4.6        109.48 Assembly Number of parts                   3.45 124        427.80 95        327.75 Machine setup Number of setups                 45.80 2.6        119.08 1.3          59.54 Inspection & Testing Logged hours                 44.00 1.3          57.20 0.75          33.00 Packaging Logged hours                 21.00 0.85          17.85 0.46            9.66 Total manufacturing cost    1,120.95        795.93

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