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	Allocation Base	Costing Rate
Materials handling	Number of parts	$	3.20	per part
Manufacturing supervision	Hours of machine time	$	14.88	per hour
Assembly	Number of parts	$	3.70	per part
Machine setup	Each setup	$	56.90	per setup
Inspection and testing	Logged hours	$	45.90	per hour
Packaging	Logged hours	$	19.90	per hour

LCI currently sells the B-13 model for $3,575 and the F-32 model for $3,460. Manufacturing costs and activity usage for the two products are as follows:

	B-13				F-32
Direct materials	$	164.90			$	75.92
Number of parts		168				128
Machine hours		8.30				4.28
Inspection time		2.50				1.60
Packaging time		1.30				0.90
Setups		5				4

The product cost for model B-13 is:

Multiple Choice

• $1,872.72.

• $1,708.22.

• $1,574.24.

• $1,320.21.

• $1,395.81.

Answer 1

Correct answer------------$1,872.72.

Working

	Product B-13
Direct material	$                  164.90
Overheads	$              1,707.82
Total Cost per unit	$              1,872.72

.

Cost assigned to Product B-13
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Material Handling	$             3.20	168.00	$ 538
Manufacturing supervision	$           14.88	8.30	$ 124
Assembly	$             3.70	168.00	$ 622
Machine setup	$           56.90	5.00	$ 285
Inspection and testing	$           45.90	2.50	$ 114.75
Packaging	$           19.90	1.30	$ 25.87
Total Overheads assigned			$ 1,708