60.1K

Verified Solution

Link Copied!

Integrative Cases 6.62 (Algo) Product Costing, Cost Estimation, and Decision Making (LO 6-2, 3, 4) I don't understand this. Last year (year 1), we decided to drop our highest-end Red model and only produce the Yellow and Green models, because the cost system indicated we were losing money on Red. Now, looking at the preliminary numbers, our profitis actually lower than last year and it looks like Yellow has become a money loser, even though our prices, volumes, and direct costs are the same. Can someone please explain this to me and maybe help me decide what to do next year? Robert Dolan President & CEO Dolan Products Dolan Products is a small, family-owned audio component manufacturer. Several years ago, the company decided to concentrate on only three models, which were sold under many brand names to electronic retailers and mass-market discount stores. For internal purposes, the company uses the product names Red, Yellow, and Green to refer to the three components Data on the three models and selected costs follow.. Year a Yellow Green Total Units produced and sold 5.000 9,000 16,000 30,000 Sales price per unit 5135 5114 $ 90 Direct materials cost per unit 590 $80 $60 Direct labor-hours per unit 2 1 0.4 Wage rate per hour $ 12 512 5.12 Total manufacturing overhead 5431,800 Red This year Year 2), the company only produced the Yellow and Green models, Total overhead was $377,300. All other volumes, unit prices, costs, and direct labor usage were the same as in year 1. The product cost system at Dolan Products allocates manufacturing overhead based on direct lobor-hours. Total 30,000 Data on the three models and selected costs follow. Year 1 Red Units produced and sold 5,000 Sales price per unit $135 Direct materials cost per unit $90 Direct labor-hours per unit 2 Wage rate per hour $ 12 Total manufacturing overhead Yellow 9.000 $114 $ 80 1 $ 12 Green 16,000 $ 90 $50 0.4 5.12 $431,800 This year (year 2), the company only produced the Yellow and Green models. Total overhead was $377,300. All other volumes, unit prices, costs, and direct labor usage were the same as in year 1. The product cost system ot Dolan Products allocates manufacturing overhead based on direct lobor hours. Required: a. Compute the product costs and gross margins (revenue less cost of goods sold) for the three products and total gross profit (los) for year 1 b. Compute the product costs and gross margins (revenue less cost of goods sold) for the two remaining products and total grass profit (loss) for year 2 c. Should Dolon Products drop Yellow for year 3? Complete this question by entering your answers in the tabs below. Required A Required B Required Compute the product costs and gross margins (revenue less cost of goods sold) for the three products and total gross profit (loss) for year 1. (Do not round Intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Required A Required Required Compute the product costs and gross margins (revenue less cost of goods sold) for the three products and total gross profit (loss) for Year 1. (Do not found intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places) TO aroon Red Yellow Product cost per unit Gross margin (los) per unit Total gross profit (los) Required Complete this question by entering your answers in the tabs below. Required A Required B Required Compute the product costs and gross margins (revenue less cost of goods sold) for the two remaining products and total gross profit (loss) for year 2. (Do not round your intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Yollow Groen Total Product cost per unit Gross margin (loss) per unit Total gross profit (loss) Complete this question by entering your answers in the tabs below. Required A Required B Required Should Dolan Products drop Yellow for year 3? Yes ONO

Answer & Explanation Solved by verified expert

See Answer