(Product profitability) Moldthan Systems manufactures lawn mowers and gar¬ den tractors. Lawn mowers are relatively simple to produce and are made in large quantities. Garden tractors are customized to individual wholesale cus¬ tomer specifications. The company sells 200,000 lawn mowers and 20,000 garden tractors annually. Revenues and costs incurred for each product are as follows:

Manufacturing overhead totals $2,211,000, and administrative expenses equal $3,612,000.

a. Calculate the profit (loss) in total and per unit for each product if over¬ head is assigned to product using a per-unit basis.

b. Calculate the profit (loss) in total and per unit for each product if over¬ head is assigned to products using a direct labor hour basis.

c. Assume that manufacturing overhead can be divided into two cost pools as follows: $1,300,000, which has a cost driver of direct labor hours (to¬ taling 260,000) and $911,000, which has a cost driver of machine hours (totaling 100,000). Lawn mower production uses 60,000 direct labor hours and 30,000 machine hours; garden tractor production uses 200,000 direct labor hours and 70,000 machine hours. Calculate the profit (loss) in total and per unit for each product if overhead is assigned to prod¬ ucts using these two overhead bases.

d. Does your answer in part (a), (b), or

(c) provide the better representa¬ tion of the profit contributed by each product? Explain.LO1.

Transcribed Image Text:

Revenue Direct material Direct labor ($20 per hour) Overhead Lawn Mowers $13,000,000 2,000,000 Garden Tractors $11,900,000 1,800,000 1,200,000 4,000,000 ? ?