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.

BSI currently sells the A10 model for $3,250 and the A25 model for $1,835. Manufacturing costs and activity usage for the two products follow:

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, $2,330 for the A10 model and $1,715 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:

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?

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 $ 3.75 per part $24.50 per hour $ 5.55 per part $48.60 per setup $65.00 per hour $35.00 per hour A-10 $143.76 131 9.00 2.00 1.20 Direct materials Number of parts Machine-hours Inspection time Packing time Setups A-25 $76.44 102 6.00 1.10 0.60 6 22 11 Direct materials Number of parts Machine-hours Inspection time Packing time Setups A-10 $98.65 130 10.0 2.0 1.00 11 A-25 $ 52.45 101 4.0 1.00 0.40 11