Baseball bats revenue 1,350,000, direct labor 250,000, and direct materials 550,
ID: 2359883 • Letter: B
Question
Baseball bats revenue 1,350,000, direct labor 250,000, and direct materials 550,000Tennis Rackets revenue 900,000, direct labor 125,000 and direct materials 275,000
Munoz sporting equipment manufactures bats and rackets. Department B produces bats and Dept. T produces rackets. Munoz currently uses plantwide allocation to allocate its overhead to all products. Direct labor costs is the allocation base. The rate used is 200% of direct labor.
Required:
a. Compute the profit for each product using plantwide allocation
b. It was asked that the overhead costs be broken down for the two departments. It was discovered that had department rates been used, Department B would have had a rate of 150% of direct labor cost and Department T would have had a rate of 300% of direct labor cost. Recompute the profits for each product using each department's allocation rate (based on direct labor)
c. why are the results of a and b different
Explanation / Answer
Bats
Revenue
1,350,000
Less Costs:
Direct labor
250,000
Direct materials
550,000
Overhead (200%*250,000)
500,000
Total costs
1,300,000
Gross Profits
50,000
Rackets
Revenue
900,000
Less Costs:
Direct Labor
125,000
Direct Materials
275,000
Overhead (200%*125,00)
250,000
Total costs
650,000
Gross Profit
250,000
Gross Profit for bats is 50,000. Gross Profit for Rackets is 250,000.
Bats
Revenue
1,350,000
Less Costs:
Direct labor
250,000
Direct materials
550,000
Overhead (150%*250,000)
375,000
Total costs
1,175,000
Gross Profits
175,000
Rackets
Revenue
900,000
Less Costs:
Direct Labor
125,000
Direct Materials
275,000
Overhead (300%*125,00)
375,000
Total costs
775,000
Gross Profit
125,000
Gross Profit for bats is 175,000. Gross profit for rackets is 125,000.
They are different because they used different allocation rates.
Bats
Revenue
1,350,000
Less Costs:
Direct labor
250,000
Direct materials
550,000
Overhead (200%*250,000)
500,000
Total costs
1,300,000
Gross Profits
50,000
Rackets
Revenue
900,000
Less Costs:
Direct Labor
125,000
Direct Materials
275,000
Overhead (200%*125,00)
250,000
Total costs
650,000
Gross Profit
250,000
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