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 following table shows the manufacturing cost of each unit is calculated, using activity-based costing, for these manufacturing cost pools. Cost Pools Materials handling Manufacturing supervision Assembly Machine setup Inspection and testing Packaging Allocation Base Number of parts Hours of machine time Number of parts Each setup Logged hours Logged hours Costing Rate $ 3.30 per part $24.20 per hour $ 4.65 per part $47.40 per setup $56.00 per hour $29.00 per hour BSI currently sells the A-10 model for $2,470 and the A-25 model for $1,525. Manufacturing costs and activity usage for the two products follow: Direct materials Number of parts Machine-hours Inspection time Packing time Setups A-10 $134.76 128 8.10 1.70 1.05 A-25 $73.44 99 5.40 0.95 0.54 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, $1,795 for the A-10 model and $1,370 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, as follows: Direct materials Number of parts Machine-hours Inspection time Packing time Setups A-10 A-25 $92.65 $49.45 124 95 8.5 3.4 1.7 0.85 0.91 88 0.34 2-a. Calculate the total product costs with the new activity usage data. 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? 4. What cost management method might be useful to BSI at this time? Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 4 Can BSI make a positive gross margin with the new costs, assuming that it must meet the price set by the new competitor? O Yes o No 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.) A-10 A-25 Product cost Product margin Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Req 2B Req 4 Calculate the total product costs with the new activity usage data. (Round your answers to 2 decimal places.) A-10 A-25 Product cost Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 4 What cost management method might be useful to BSI at this time? Target costing Activity-based costing Life-cycle costing Kaizen costing
