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26. 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 $2.40 per part
Manufacturing supervision Hours of machine time $14.80 per hour
Assembly Number of parts $3.30 per part
Machine setup Each setup $56.50 per setup
Inspection and testing Logged hours $45.50 per hour
Packaging Logged hours $19.50 per hour
LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing
costs and activity usage for the two products are as follows:
B-13 F-32
Direct materials $164.50 $75.60
Number of parts 160.00 120.00
Machine hours 7.90 4.20
Inspection time 1.70 0.80
Packaging time 0.90 0.50
Setups 3.00 2.00
If the market price for B-13 and F-32 are reduced to $1,695 and $1,095 respectively, and Lens
Care wants to maintain market share and profitability, what is the target cost for B-13 and F-32
(round to nearest whole dollar)?
B-13 F-32
A) $80 $120
B) $1,378 $125
C) $318 $856
D) $1,378 $856
E) $318 $422
27. 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 $2.40 per part
Manufacturing supervision Hours of machine time $14.80 per hour
Assembly Number of parts $3.30 per part
Machine setup Each setup $56.50 per setup
Inspection and testing Logged hours $45.50 per hour
Packaging Logged hours $19.50 per hour
LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing
costs and activity usage for the two products are as follows:
B-13 F-32
Direct materials $164.50 $75.60
Number of parts 160.00 120.00
Machine hours 7.90 4.20
Inspection time 1.70 0.80
Packaging time 0.90 0.50
Setups 3.00 2.00
To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts
must be removed from B-13 in order to achieve the target cost for B-13 (round up to whole
units)?
28. 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 $2.40 per part
Manufacturing supervision Hours of machine time $14.80 per hour
Assembly Number of parts $3.30 per part
Machine setup Each setup $56.50 per setup
Inspection and testing Logged hours $45.50 per hour
Packaging Logged hours $19.50 per hour
LCI currently sells the B-13 model for $1,775 and the F-32 model for $1,220. Manufacturing
costs and activity usage for the two products are as follows:
B-13 F-32
Direct materials $164.50 $75.60
Number of parts 160.00 120.00
Machine hours 7.90 4.20
Inspection time 1.70 0.80
Packaging time 0.90 0.50
Setups 3.00 2.00
To achieve the target cost, Lens Care plans to reduce materials handling costs. How many parts
must be removed from F-32 in order to achieve the target cost for F-32 (round up to whole
units)?
29. Quality Industries manufactures large workbenches for industrial use. Yewell Hartnet, the
Vice President for marketing at Quality Industries, concluded from market analysis that sales
were dwindling for Quality's workbenches due to aggressive pricing by competitors. Quality's
workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060.
Yewell determined that a price drop to $1,060 would be necessary to retain market share and
annual sales of 13,000 tables.
Cost data based on sales of 13,000 workbenches:
Budgeted Quantity Actual Quantity Actual Cost
Direct materials (pounds) 175,000 168,000 $3,450,000
Direct labor (hours) 72,800 71,500 825,000
Machine setups (no. of setups) 900 880 250,000
Mechanical assembly (machine hours) 273,000 281,250 3,750,000
The current cost per unit is (rounded to the nearest whole dollar):
30. Quality Industries manufactures large workbenches for industrial use. Yewell Hartnet, the
Vice President for marketing at Quality Industries, concluded from market analysis that sales
were dwindling for Quality's workbenches due to aggressive pricing by competitors. Quality's
workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060.
Yewell determined that a price drop to $1,060 would be necessary to retain market share and
annual sales of 13,000 tables.
Cost data based on sales of 13,000 workbenches:
Budgeted Quantity Actual Quantity Actual Cost
Direct materials (pounds) 175,000 168,000 $3,450,000
Direct labor (hours) 72,800 71,500 825,000
Machine setups (no. of setups) 900 880 250,000
Mechanical assembly (machine hours) 273,000 281,250 3,750,000
The current profit per unit is (rounded to the nearest whole dollar):
31. Quality Industries manufactures large workbenches for industrial use. Yewell Hartnet, the
Vice President for marketing at Quality Industries, concluded from market analysis that sales
were dwindling for Quality's workbenches due to aggressive pricing by competitors. Quality's
workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060.
Yewell determined that a price drop to $1,060 would be necessary to retain market share and
annual sales of 13,000 tables.
Cost data based on sales of 13,000 workbenches:
Budgeted Quantity Actual Quantity Actual Cost
Direct materials (pounds) 175,000 168,000 $3,450,000
Direct labor (hours) 72,800 71,500 825,000
Machine setups (no. of setups) 900 880 250,000
Mechanical assembly (machine hours) 273,000 281,250 3,750,000
If the profit per unit is maintained, the target cost per unit is (rounded to the nearest whole
dollar):
32. Quality Industries manufactures large workbenches for industrial use. Yewell Hartnet, the
Vice President for marketing at Quality Industries, concluded from market analysis that sales
were dwindling for Quality's workbenches due to aggressive pricing by competitors. Quality's
workbench sells for $1,140 whereas the competition's comparable workbench sells for $1,060.
Yewell determined that a price drop to $1,060 would be necessary to retain market share and
annual sales of 13,000 tables.
Cost data based on sales of 13,000 workbenches:
Budgeted Quantity Actual Quantity Actual Cost
Direct materials (pounds) 175,000 168,000 $3,450,000
Direct labor (hours) 72,800 71,500 825,000
Machine setups (no. of setups) 900 880 250,000
Mechanical assembly (machine hours) 273,000 281,250 3,750,000
In order to reduce costs so as to reach the desired target cost, Quality Industries should also
focus on reducing the cost of:
33. Suzy Co. produces and sells three products (X, Y, and Z). The following data relate to the
three products:
X Y Z
Demand in units 160 150 140
Selling price per unit $130 $160 $150
Raw materials costs per unit $65 $80 $90
Labor time in minutes per unit 10 20 15
Which is the most profitable product if there is no constraint on labor time?
34. Suzy Co. produces and sells three products (X, Y, and Z). The following data relate to the
three products:
X Y Z
Demand in units 160 150 140
Selling price per unit $130 $160 $150
Raw materials costs per unit $65 $80 $90
Labor time in minutes per unit 10 20 15
Which is the most profitable product if there is a constraint on labor time, so that total demand
for all products cannot be met?
35. Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line
profitability analysis for his firm's two products - Askin and Bskin. The two products are skin care
products that require a large amount of research and development and advertising. He received
the report below. Ken concluded that Askin was the more profitable product, and that perhaps
cost-cutting measures should be applied to the Bskin product.
Askin Bskin Total
Sales $4,000,000 $2,600,000 $6,600,000
Cost of goods sold (2,600,000) (2,100,000) (4,700,000)
Gross profit $1,400,000 $500,000 $1,900,000
Research and development (1,170,000)
Selling expenses (130,000)
Profit before taxes $600,000
Seventy-five percent of the research and development and selling expenses were traceable to
Askin.
Profit before taxes for the Askin product, per life-cycle income statements, is:
36. Ken Yalters, the COO of FreshSkin, asked his cost management team for a product line
profitability analysis for his firm's two products - Askin and Bskin. The two products are skin care
products that require a large amount of research and development and advertising. He received
the report below. Ken concluded that Askin was the more profitable product, and that perhaps
cost-cutting measures should be applied to the Bskin product.
Askin Bskin Total
Sales $4,000,000 $2,600,000 $6,600,000
Cost of goods sold (2,600,000) (2,100,000) (4,700,000)
Gross profit $1,400,000 $500,000 $1,900,000
Research and development (1,170,000)
Selling expenses (130,000)
Profit before taxes $600,000
Seventy-five percent of the research and development and selling expenses were traceable to
Askin.
Profit before taxes for the Askin product, per life-cycle income statements, is:
37. The management accountant at Lang Manufacturing Co. collected the following data in
preparation for a life-cycle analysis on one of its products, a leaf blower:
Item
This
Year
Change
Over
Last
Year Average
Annual
Change Over
the Last
Four Years
Annual sales $2,700,000 +1.8% +23.5%
Unit sales price 450 +2.4% +8.3%
Unit profit 100 -1.0% +3.0%
Total profit 600,000 -1.2% +30.0%
The stage of the sales life cycle the product is in is:
38. Which of the following is a theory of constraints (TOC) measure of product profitability
that equals price less materials cost, including all purchased components and materials handling
costs?
