Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Departme
ID: 2476159 • Letter: M
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 150 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows: Required: Compute the profit for each product using plantwide allocation. 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).Explanation / Answer
Allocation of Overhead at 150% Direct Labor
Particulars
Base ball bats
Tennis Rackets
Sales Revenue
1,560,000
1,075,000
Less: Cost
Direcr Material
220,000
110,000
Direct Labor
560,000
291,000
Overhead @ 150%
840,000
436,500
Total Cost
1,620,000
837,500
Profit
$ (60,000)
$ 237,500
Base ball bats
$ (60,000)
Tennis Rackets
$ 237,500
Allocation of Overhead at 100% & 250 % Direct Labor
Particulars
Base ball bats
Tennis Rackets
Sales Revenue
1,560,000
1,075,000
Less: Cost
Direcr Material
220,000
110,000
Direct Labor
560,000
291,000
Overhead
560,000
727,500
Total Cost
1,340,000
1,128,500
Profit
$ 220,000
$ (53,500)
Base ball bats
$ 220,000
Tennis Rackets
$ (53,500)
Allocation of Overhead at 150% Direct Labor
Particulars
Base ball bats
Tennis Rackets
Sales Revenue
1,560,000
1,075,000
Less: Cost
Direcr Material
220,000
110,000
Direct Labor
560,000
291,000
Overhead @ 150%
840,000
436,500
Total Cost
1,620,000
837,500
Profit
$ (60,000)
$ 237,500
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