(Product profitability) Lawn Management Systems (LMS) manufactures two products: lawnmowers and garden tractors. Lawnmowers are relatively simple to produce and are made in large quantities. Garden tractors must be more customized to individual wholesale customer specifications. LMS sells 50,000 lawnmowers and 10,000 garden tractors annually. Revenues and costs incurred for each product are as follows:
Lawnmowers Garden Tractors Revenue $8,000,000 $8,800,000 Direct material 2,000,000 1,800,000 Direct labor 1,200,000 4,000,000 Overhead ? ?
Labor is paid $20 per hour, manufacturing overhead totals $2,210,000, and administrative expenses equal $1,612,000.

a. Calculate the profit (loss) on each product if overhead and administrative expenses are assigned to the products using a direct labor hour base.

b. Calculate the profit (loss) on each product if overhead is assigned to products using a direct labor hour base but administrative expenses are deducted from total company income rather than being allocated to products.

c. Does your answer in part (a) or part (b) provide the better representation of the profit contributed by each product? Explain.