Bowman Specialists Inc. (BSI) manufactures specialized equipment for polishing optical lenses. There are two modelsone (A25) principally used for fine eyewear and the other (A10) for lenses used in binoculars, cameras, and similar equipment.

The following table shows 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		$	2.55	per part
Manufacturing supervision		Hours of machine time		$	23.70	per hour
Assembly		Number of parts		$	3.15	per part
Machine setup		Each setup		$	45.40	per setup
Inspection and testing		Logged hours		$	41.00	per hour
Packaging		Logged hours		$	19.00	per hour

BSI currently sells the A10 model for $1,370 and the A25 model for $945. Manufacturing costs and activity usage for the two products follow:

	A-10			A-25
Direct materials	$	139.76		$	68.44
Number of parts		123			94
Machine-hours		6.60			4.40
Inspection time		1.20			0.70
Packing time		0.80			0.44
Setups		6			3

Required:

1. Calculate the product cost and product margin for each product.

2. A new competitor has entered the market for lens-polishing equipment with a superior product at significantly lower prices, $1,100 for the A10 model and $815 for the A25 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, as follows:

A-10A-25Direct materials$82.65 $44.45 Number of parts 114 85 Machine-hours 6.0 2.4 Inspection time 1.2 0.60 Packing time 0.76 0.24 Setups 3 3

Complete this question by entering your answers in the tabs below.

• Req 1
• Req 2A
• Req 2B
• Req 4

Calculate the product cost and product margin for each product. (Round your answers to 2 decimal places.)

	A10	A25
Product cost
Product margin

	A10	A25
Product cost

Can BSI make a positive gross margin with the new costs, assuming that it must meet the price set by the new competitor?

radio button unchecked1 of 2	Yes
radio button unchecked2 of 2	No

What cost management method might be useful to BSI at this time?

radio button unchecked1 of 4	Target costing
radio button unchecked2 of 4	Activity-based costing
radio button unchecked3 of 4	Life-cycle costing
radio button unchecked4 of 4	Kaizen costing