Refer to Problem 9-49. Assume that you have prepared financial statements that show the operating profit for each of the two toys manufactured by Pepper’s Products. Further assume that under the activity-based costing approach (requirement [a] in Problem 9-49), the squeaky toys are less profitable than when you used only direct labor costs to allocate overhead costs (requirement [c] in Problem 9-49). You know that if management sees the activity-based costing results, the company will probably quit producing squeaky toys. You have friends who work on the production and marketing of squeaky toys and you believe that they would lose their jobs if management dropped this line.

Required
Should you show the activity-based costing results to management?

Data From Problem 9-49:

Pepper’s Products manufactures and sells two types of chew toys for pets, Squeaky and Silent. In May, Pepper’s Products had the following costs and revenues:

                       

Pepper’s Products currently uses labor costs to allocate all overhead but is considering implementing an activity-based costing system. After interviewing the sales and production staff, management decides to allocate administrative costs on the basis of direct labor costs but to use the following bases to allocate the remaining overhead: