Dawson Company manufactures three types of computer games: Skyhawk, Seahawk, and Sharks. It al-locates overhead to the games based on the number of direct labor hours worked on each product. The results of the most recent period follow:

The manager of Dawson Company is concerned that the Skyhawk game seems to be a net loser and he is considering whether to discontinue it. He has asked you to analyze the situation and make a recommendation. Your analysis reveals that Dawson Company has three levels of overhead' facility- sustaining, batch- related, and unit- related and that the appropriate overhead rates are $ 6.00 per square foot, $ 1,000 per production run, and $ 4 per unit, respectively. Resource usage during the past period follows. In addition, you discover that administrative costs are fixed while selling costs are variable per unit.

Required

Requires prior study of Chapter 4.

A. Determine whether Dawson Company should drop any game.

B. Write a memo to the manager with your recommendation.

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Skyhawk 9,000 Seahawk Sharks 7,000 Units produced and sold Selling price 8,000 Direct materials per unit Direct labor cost per unit Manufacturing overhead per unit 5.50 9.00 27.00 4.25 6.00 .00 Gross margin $17.75 1.50 13.25 Selling cost per unit Administrative cost per unit 1.25 3.75 Net income (loss) per unit 6.00 Skyhawk 10,000 Seahawk Sharks Square feet occupied Production runs 15,000 12 12500 12