Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Departme
ID: 2571298 • 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 100 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows:
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 collages in accounting to break down the overhead cost 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 profit for each product using each department's allocation rate (based on direct labor cost).
Baseball Bats Tennis Rackets Sales Revenue $1,540,000 1,000,000 Direct Labor 340,000 170,000 Direct Materials 561,000 283,000Explanation / Answer
a.
Over head for Baseball Bats = Direct labor x 100 % = $ 340,000 x 1 = $ 340,000
Over head for Tennis Rackets = Direct labor x 100 % = $ 170,000 x 1 = $ 170,000
Baseball Bats
Tennis Rackets
Revenue
$ 1,540,000
$ 1,000,000
Less: Direct labor
$ 340,000
$ 170,000
Less: Direct material
$ 561,000
$ 283,000
Less: Overhead
$ 340,000
$ 170,000
Profit
$ 299,000
$ 377,000
b.
Over head for Department B = Direct labor x 50 % = $ 340,000 x 0.5 = $ 170,000
Over head for Department T = Direct labor x 200 % = $ 170,000 x 2 = $ 340,000
Baseball Bats
Tennis Rackets
Revenue
$ 1,540,000
$ 1,000,000
Less: Direct labor
$ 340,000
$ 170,000
Less: Direct material
$ 561,000
$ 283,000
Less: Overhead
$ 170,000
$ 340,000
Profit
$ 469,000
$ 207,000
Baseball Bats
Tennis Rackets
Revenue
$ 1,540,000
$ 1,000,000
Less: Direct labor
$ 340,000
$ 170,000
Less: Direct material
$ 561,000
$ 283,000
Less: Overhead
$ 340,000
$ 170,000
Profit
$ 299,000
$ 377,000
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