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:
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:
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)?

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: 
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: 
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)?

Quizplus · Accepted Answer

To determine the target cost for each model, we need to adjust the manufacturing costs to the new market prices and subtract the desired profit margin from the adjusted costs.

For B-13:

Adjusted manufacturing cost = $1,517 ($1,775 - $258) 
Desired profit margin = $226 (new market price of $1,695 - adjusted cost of $1,517) 
Target cost = $1,291 ($1,517 - $226)

For F-32:

Adjusted manufacturing cost = $965 ($1,220 - $255) 
Desired profit margin = $130 (new market price of $1,095 - adjusted cost of $965) 
Target cost = $835 ($965 - $130)

Therefore, the target costs for B-13 and F-32 are $1,291 and $835, respectively.

Option D is the correct answer, as it lists both target costs correctly.