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 200 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows.  Baseball BatsTennis RacketsSales revenue$1,610,000$1,150,000Direct labor340,000170,000Direct materials566,000294,000 Required:a. Compute the profit for each product using plantwide allocation.b. Maria, the manager of Department T, was convinced that tennis rackets were 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 150 percent of direct labor cost and Department T would have had a rate of 300 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             Racketsa.Using plantwide allocation         ?          ?b.Using departments allocation rate         ?          ?

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Asked Nov 6, 2019
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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 200 percent of direct labor cost. Last year, revenue, materials, and direct labor were as follows.

 

  Baseball Bats Tennis Rackets
Sales revenue $1,610,000 $1,150,000
Direct labor 340,000 170,000
Direct materials 566,000 294,000

 

Required:

a. Compute the profit for each product using plantwide allocation.
b. Maria, the manager of Department T, was convinced that tennis rackets were 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 150 percent of direct labor cost and Department T would have had a rate of 300 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
a. Using plantwide allocation          ?           ?
b. Using departments allocation rate          ?           ?

 

 
 
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Step 1

Calculate the profit for each product using plant-wide allocation.

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Tennis Particulars Baseball Bats Racket Sales Revenue $1,610,000 $1,150,000 Less: $340,000 $170,000 Direct Labor $294,000 $566,000 Direct Materials $680.000 (1) $340.000 (2) Overhead S1.586.000 $804.000 $24.000 Profit $346.000

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Step 2

Working note 1:

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Calculate the overhead for baseball bats using plant-wide allocation Overhead Direct labor x Percenatge of direct labor =$340,000x 200% = $680,000

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Step 3

Working note 2:

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Calculate the overhead for tennis rackets using plant-wide allocation Overhead Direct labor x Percenatge of direct labor =$170,000 x 200% -$340,000

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