Question

Check my work 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. 0.31 points The following table shows the manufacturing cost of each unit is calculated, using activity-based costing, for these manufacturing cost pools. eBook 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 $ 2.70 per part $23.80 per hour $ 3.45 per part $ 45.80 per setup $44.00 per hour $21.00 per hour References BSI currently sells the A-10 model for $1,530 and the A-25 model for $1,030. Manufacturing costs and activity usage for the two products follow:

Answer 1

Answer to part 1.
Statement showing product cost and product margin for each product
Particulars	A-10	A-25
Selling Price (A)	$        1,530.00	$ 1,030.00
Direct Material	$           137.76	$      69.44
Material Handling	$           334.80	$    256.50
Manufacturing Supervision cost	$           164.22	$    109.48
Assembly	$           434.00	$    332.50
Machine Setup cost	$           366.40	$    183.20
Inspection	$              57.20	$      33.00
Packaging	$              17.85	$        9.66
Total Cost (B)	$        1,512.23	$    993.78
Margin (A-B)	$              17.77	$      36.22
Answer to part 2(a)
Statement showing product cost and product margin for each product with new activity usage data
Particulars	A-10	A-25
Selling Price (A)	$        1,295.00	$    880.00
Direct Material	$              84.65	$      45.45
Material Handling	$           313.20	$    234.90
Manufacturing Supervision cost	$           154.70	$      61.88
Assembly	$           406.00	$    304.50
Machine Setup cost	$           183.20	$    183.20
Inspection	$              57.20	$      28.60
Packaging	$              16.59	$        5.46
Total Cost (B)	$        1,215.54	$    863.99
Margin (A-B)	$              79.46	$      16.01
Answer to Part 2(b)
Yes, BSI can make positive gross margin with the new costs and new sale price as set be the competitor in product A-10 and with product A-25, although the gross margin in positive , yet it is less than what it was in the previous sale price and cost structure.
Answer to part 4.
Target costing will be suitable to BSI because in this method we can well plan in advance what costs to be incurred and what margins is to be achieved for a product with competitive market.