Cost Pools Allocation Base Costing Rate Materials handling Number of parts 5 3.30 Ezit Manufacturing Hours of machine $23 40 per supervision time '...

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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 Allocation Base Costing Rate Materials handling Number of parts 5 3.30 EzitManufacturing Hours of machine $23 40 per supervision time ' hourper Assembly Number of parts $ 5.40 part. per Machine setup Each setup $47.20 setupInspection and pertesting Logged hours $44.00 hour. perPackaging Logged hours $19.00 hour I— BSI currently sells the A—1O model for $5,070 and the 11—25 model for $1,990. Manufacturing costs and activity usagefor the two products follow: A-lo 11—25fliizgials $139‘76 $55-4432:? Of 126 9?E23236" 7 . so 5 _ 00imection 1.50 0-85Siting 0 . 95 o . soSetups 36 18 l— 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 lowerprices, $2,390 for the A—10 model and $1,865 for the 31—25 model. To try to compete, BSI has made some radicalimprovements in the design and manufacturing of its two products. The materials costs and activity usage rates havebeen decreased significantly, as follows: 11-10 11-25 Direct materials $88.65 $47.45Number of parts 120 91Machine-hours 7.5 3.0Inspection time 1.5 0.75Packing time 0.85 0.30Setups 18 18 '— 2-a. Calculate the total product costs with the new activity usage data. 2-D. Can BSI make a positive gross margin with the new costs, assuming that it must meet the price set by the newcompetitor? 4. What cost management method might be useful to BSI at this time?