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Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and Department T produces the tennis rackets. Munoz currently uses
Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and Department T produces the tennis rackets. Munoz currently uses plantwide allocation to allocate its overhead to all products. Direct labor cost is the allocation base. The rate used is 100 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows: Baseball Bats Tennis Rackets Sales revenue $ 1,650,000 $ 925,000 Direct labor 240,000 120,000 Direct materials 552,000 285,000 Required: (a) Compute the profit for each product using plantwide allocation. (b) Maria, the manager of Department T, was convinced that tennis rackets were really more profitable than baseball bats. She asked her colleague in accounting to break down the overhead costs for the two departments. She discovered that had department rates been used, Department B would have had a rate of 50 percent of direct labor cost and Department T would have had a rate of 200 percent of direct labor cost. Recompute the profits for each product using each departments allocation rate (based on direct labor cost). ------------------------------------------------------------------- Rodent Corporation produces two types of computer mice, wired and wireless. The wired mice are designed as low-cost, reliable input devices. The company only recently began producing the higher-quality wireless model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing. Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,323,000 based on production of 360,000 wired mice and 114,000 wireless mice. Direct labor and direct materials costs were as follows: Wired Wireless Total Direct labor $ 1,042,000 $ 402,000 $ 1,444,000 Materials 730,000 682,000 1,412,000 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Activity Level Cost Driver Costs Assigned Wired Wireless Total Number of production runs $ 605,000 40 15 55 Quality tests performed 558,000 12 19 31 Shipping orders processed 160,000 110 50 160 Total overhead $ 1,323,000 Required: (a) How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total Cost Per Unit" to 2 decimal places.)
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