Cases Case 11-1: Tilist Golf Tilist Golf is a premier producer of golf clubs and golf balls. The Ball Division makes two types of balls: a professional ball (the "Masters") played by professional and top amateur players and a mass-market ball (the "Distance") that targets weekend players. Although most golf balls are very similar in construction and performance, slight differences exist between them. The Masters ball is a little softer and allows skilled players to put more spin on the ball for control. The Distance ball is a little harder with a more durable cover. While the two balls perform similarly, many golfers perceive the differences are larger than they really are, especially across ball manufacturers. Most golfers have a favorite brand of ball. Golf ball manufacturers compete over ball design (dimples, cover, core composition), price, and marketing. The principal way balls are marketed is through the endorsements of major professional golfers. Tilist pays professional golfers up to $500,000 per year to wear Tilist hats or shirts during tounaments, to allow Tilist to use their image in commercials, and to play Tilist balls (which are provided free to the professional) in all toumaments. Tilist's Ball Division has separate profit centers managing each type of ball. The following table summarizes the operations of the Ball Division for last year Masters Distance $7 $3 25,000,000 Price per dozen Variable cost per dozen S12 300,000 sold In addition, the Ball Division has $61,429 million of overhead, consisting of sponsorships, R&D. and so forth. Required a Prepare income statements for the two ball types after allocating the S61,429 million of overhead based on revenue. b. Senior management of the Ball Division has undertaken a review of the cost allocation methodology used in part (a). They hired an ABC consultant and formed ans33 Page 532 ABC task force to design a new allocation scheme that better allocates the $61.429 million overhead to the two ball types. The overhead consists of the following items $1.075,000 18.500,000 34.837,000 3.450,000 3,567,000 $61.429.000 samples Advertising Ball Division headquarters expenses Overheacd Promotional samples consist of Tilist balls given away to touring pros under Til- ist sponsorships, marketing opportunities, and charity events. $950.000 of Masters and $125,000 of Distance balls comprise the $1.075,000 of promotional samples. The $18.5 million of sponsorships consists of payments to touring professional golfers expected to do well in televised tournaments. Sponsored pros are paid to play Tilist balls and wear the Tilist name on their hats or shirts. Sponsorships are aimed at increasing Tilist's name recognition across all types of golfers. Senior managers and the ABC task force believe the sponsorships expenditure is best assigned to the two divisions based on the number of balls sold. The advertising expenditure of S34.837,000 covers television and print ads ($1.35 million for Masters and S33.487 million for Distance). improving the Masters, and two-thirds of the R&D effort is directed toward improving the Distance. ABC task force has agreed that 40 percent of the S3.567 million headquarters expenses should be allocated to Masters and the remainder to Distance. Based on the income statements Tilist has a research lab where it designs new balls by experimenting with different dimple patterns, covers, and cores. About one-third of the R&D effort is devoted to After an extensive study of the various functions of the Ball Division's headquarters expenses, including the time spent by the various personnel in the two ball divisions, the Prepare income statements based on the findings of the ABC task force c. in part (a) (overhead allocated using revenues) and part (b) (ABC overhead allocations), what conclusions can you draw about the relative profitability of the two ball tpes