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 Direct labor Direct $1,530,000 290,000 $1,000,eee 145,000 554,00e 288,000 materials 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). Profit Baseball Bats Tennis Rackets Using plantwide allocation a b Using department's allocation rate Next

Answer 1

Answer:

a. Computation of the profit of each product using plantwide allocation.
	Baseball Bats	Tennis Rackets
Sales Revenue	15,30,000	10,00,000
Direct Labour	2,90,000	1,45,000
Direct Material	5,54,000	2,88,000
Overhead 100% of Direct Labour	2,90,000	1,45,000
Total Cost	11,34,000	5,78,000
Profit	3,96,000	4,22,000
b.) computation of the profit using department's allocation rate
	Baseball Bats	Tennis Rackets
Sales Revenue	15,30,000	10,00,000
Direct Labour	2,90,000	1,45,000
Direct Material	5,54,000	2,88,000
Overhead(50% *290000)(200%*145000)	1,45,000	2,90,000
Total Cost	9,89,000	7,23,000
Profit	5,41,000	2,77,000