Question

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 $ 1,580,000 $ 1,125,000 Direct labor 320,000 160,000 Direct materials 564,000 293,000 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 department’s allocation rate (based on direct labor cost).

Answer 1

ANSWER

a
	Baseball bats	Tennis Rackets
Sales revenue	1,580,000	1,125,000
Expenses:
Direct labor	320,000	160,000
Direct materials	564,000	293,000
Overhead	320,000	160,000
Total expenses	1,204,000	613,000
Profit	376,000	512,000
b
	Baseball bats	Tennis Rackets
Sales revenue	1,580,000	1,125,000
Expenses:
Direct labor	320,000	160,000
Direct materials	564,000	293,000
Overhead	160,000	320,000
Total expenses	1,044,000	773,000
Profit	536,000	352,000

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