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Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and...


Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and Departme
Sales revenue Direct labor Direct materials Baseball Bats Tennis Rackets $1,460,000 $950,000 300,000 150,000 557,000 281,000
b. Maria, the manager of Department T, was convinced that tennis rackets were really more profitable than baseball bats. She
Profit Baseball Tennis Bats Rackets a. b. Using plantwide allocation Using departments allocation rate
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 150 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows.
Sales revenue Direct labor Direct materials Baseball Bats Tennis Rackets $1,460,000 $950,000 300,000 150,000 557,000 281,000 Required: a. Compute the profit for each product using plantwide allocation. b. Maria, the manager of Department T, was convinced that tennis rackets were < Prev 1 of 7 Next >
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 100 percent of direct labor cost and Department T would have had a rate of 250 percent of direct labor cost. Recompute the profits for each product using each department's allocation rate (based on direct labor cost).
Profit Baseball Tennis Bats Rackets a. b. Using plantwide allocation Using department's allocation rate
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Required a : Using plantwide allocation
Baseball bats Tennis rackets
Direct materials 557000 281000
Direct labor 300000 150000
Overhead allocated ( @ 150% of direct labor cost ) 450000 225000
Total manufacturing cost 1307000 656000
Baseball bats Tennis rackets
Sales revenue 1460000 950000
(-) Total manufacturing cost 1307000 656000
Profit 153000 294000
Required b : Using department's allocated rate
Baseball bats Tennis rackets
Direct materials 557000 281000
Direct labor 300000 150000

Overhead allocated

300000

[ 300000 * 100% ]

375000

[ 150000 * 250% ]

Total manufacturing cost 1157000 806000
Baseball bats Tennis rackets
Sales revenue 1460000 950000
(-) Total manufacturing cost 1157000 806000
Profit 303000 144000
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