Dawson Company manufactures three types of computer games: Skyhawk, Seahawk, and
ID: 2453765 • Letter: D
Question
Dawson Company manufactures three types of computer games: Skyhawk, Seahawk, and Sharks. It allocates overhead to the games based on the number of direct labor hours worked on each product. The results of the most recent period follow:
Skyhawk
Seahawk
Sharks
Units produced and sold
9,000
8,000
7,000
Selling Price
$45.00
$30.00
$25.00
Less:
Direct materials per unit
5.50
4.25
3.00
Direct labor cost per unit
9.00
2.00
3.00
Manufacturing overhead per unit
27.00
6.00
9.00
Gross Margin
3.50
17.75
10.00
Less:
Selling cost per unit
2.25
1.50
1.25
Administration cost per unit
3.75
3.00
2.75
Net Income (loss) per unit
$(2.50)
$13.25
$6.00
The manager of Dawson Company is concerned that the Skyhawk game seems to be a net loser and he is considering whether to discontinue it. He has asked you to analyze the situation and make a recommendation. Your analysis reveals that Dawson Company has three levels of overhead – faculty sustaining, batch-related, and unit-related – and that the appropriate overhead rates are $6.00 per square foot, $1,000 per production run, and $4 per unit, respectively. Resource usage during the past period follows. In addition, you discover that administrative costs are fixed while selling costs are variable per unit.
Skyhawk
Seahawk
Sharks
Square feet occupied
10,000
12,500
15,000
Production runs
9
12
12
Required:
Determine whether Dawson Company should drop any game.
Write a memo to the manager with your recommendation
Skyhawk
Seahawk
Sharks
Units produced and sold
9,000
8,000
7,000
Selling Price
$45.00
$30.00
$25.00
Less:
Direct materials per unit
5.50
4.25
3.00
Direct labor cost per unit
9.00
2.00
3.00
Manufacturing overhead per unit
27.00
6.00
9.00
Gross Margin
3.50
17.75
10.00
Less:
Selling cost per unit
2.25
1.50
1.25
Administration cost per unit
3.75
3.00
2.75
Net Income (loss) per unit
$(2.50)
$13.25
$6.00
Explanation / Answer
The distribution of Manufacturing overhead based on analysis is as follows:
Faculty sustaining
= Square feet occupied X Rate per square foot
Skyhawk
= 10,000 X $ 6
= $ 60,000
Per unit cost
= $ 60,000/9,000
= $ 6.67 per unit
Seahawk
= 12,500 X $ 6
= $ 75,000
Per unit cost
= $ 75,000/8,000
= $ 9.375 per unit
Sharks
= 15,000 X $ 6
= $ 90,000
Per unit
= $ 90,000/7,000
= $ 12.86 per unit
Batch-related
= Production runs X Rate per run
Skyhawk
= 9 X $ 1,000
= $ 9,000
Per unit
= $ 9,000/9,000
= $ 1 per unit
Seahawk
= 12 X $ 1,000
= $ 12,000
Per unit
= $ 12,000/8,000
= $ 1.50 per unit
Sharks
= 12 X $ 1,000
= $ 12,000
Per unit
= $ 12,000/7,000
= $ 1.71 per unit
Fixed Administrative cost for each product is calculated below:
= Production X Administration cost per unit
Skyhawk
= 9,000 X $ 3.75
= $ 33,750
Seahawk
= 8,000 X $ 3.00
= $ 24,000
Sharks
= 7,000 X $ 2.75
= $ 19,250
the detailed cost report is shown below:
Memo
Dear Manager,
as you can find from the above calculations, game Sharks is contributing towards losses of the organization in place of game Skyhawk. So, your organization should drop product Sharks.
Particulars Skyhawk Seahawk Sharks Units produced and sold Selling Price 45.00 30.00 25.00 Less: Direct materials per unit 5.50 4.25 3.00 Direct labor cost per unit 9.00 2.00 3.00 Manufacturing overhead per unit: Faculty sustaining 6.67 9.375 12.86 Batch-related 1.00 1.50 1.71 Unit-related 4.00 4.00 4.00 Gross Margin 18.83 8.875 0.43 Selling cost per unit 2.25 1.50 1.25 Contribution per unit 16.58 7.375 -0.82 Total contribution for all units sold 149,220.00 59,000.00 -5,740.00 Less: Fixed Costs 33,750.00 24,000.00 19,250.00 Profits 115,470.00 35,000.00 -24,990.00Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.