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 Allocations base Costing rate
1- Materials handling Number of parts 2.40 per part
2- Manufacturing Supervision Hours of machine time 14.80 per hour
3- Assembly Number of parts 3.30 per part
4- Machine setup Each setup 56.50 per setup
5- Inspection and testing Logged hours 45.50 per hour
6- Packaging Logged hours 19.50 per hour
LCI currently sells the B-13 model for $1,690 and the F-32 model for $922. Manufacturing costs and activity usage for the two products are as follows:________.
B-13 F-32
Direct materials $150.50 $95.90
Number of parts 180.00 110.00
Machine Hours 7.50 6.20
Inspection time 1.50 1.25
Packaging time .75 .50
Set-ups 3.00 2.00
1) The product cost for model B-13 is calculated to be:
2) The product cost for model F-32 is calculated to be:
3) The product margin for model B-13 is calculated to be:
4) The product margin for model F-32 is calculated to be:

Answer 1

Answer:

1.  Product cost for model B-13

Various Manufacturing cost =  Cost driver * Activity Rate

Materials handling = 180 parts x $2.40 = $432.00

Manufacturing Supervision = 7.50 machine hours x $14.80 = $111.00

Assembly = 180 parts * $3.30 = $594.00

Machine setup = 3 setups * $56.50 = $169.50

Inspection and testing = 1.50 inspection time * $45.50 = $68.25

Packaging = 0.75 packaging time * $19.50 = $14.63

Total Manufacturing cost =$432.00 + $111.00 +  $594.00 + $169.50   + $68.25  + $14.63  = $1389.38

Particulars                    Amount$

Direct Materials           150.50

Manufacturing cost     1,389.38

Total Product cost      1,539.88

The product cost for model B-13 is $1,539.88

2.  Product cost for model F-32

Various Manufacturing cost =  Cost driver * Activity Rate

Materials handling = 110 parts * $2.40 = $264.00

Manufacturing Supervision hours = 6.20 machine hours * $14.80 = $91.76

Assembly = 110 parts * $3.30 = $363.00

Machine setup = 2 setups * $56.50 = $113.00

Inspection and testing = 1.25 inspection time * $45.50 = $56.88

Packaging = 0.50 packaging time * $19.50 = $9.75

Total Manufacturing cost = $264.00  + $91.76  + $363.00 + $113.00  + $56.88 + $9.75 = $898.39

Particulars                Amount$

Direct Materials         95.90

Manufacturing cost   898.39

Total Product cost    994.29

Hence, the product cost for model F-32  is $994.29.

3. Particulars              Amount$

Sales                            1,690.00

Less: Product cost      1,539.88

Product Margin          150.12

Hence, the product margin for Model B-13 is $150.12

4. Particulars           Amount$

Sales                         922.00

Less: Product cost   994.29

Product Margin       -72.29

Hence, the product margin for Model F-32 is -$72.29