Reference no: EM131787219

Question - Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B pro- duces 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

Revenue $1,350,000 $900,000

Direct labor 250,000 125,000

Direct materials 550,000 275,000

Required

a. Compute the profit for each product using plant wide 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. Re-compute the profits for each product using each department's allocation rate (based on direct labor cost).

c. Why are the results different in requirements (a) and (b)?