Critical Thinking AssignmentDawson Company manufactures three types of computer games: Skyhawk,...

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Critical Thinking AssignmentDawson Company manufactures three types of computer games: Skyhawk, Seahawk, and Sharks. It allocates overhead to the games based on the number of direct labor hours worked on each product. The results of the most recent period follow: 	 		 			 			Skyhawk 			Seahawk 			Sharks 		 		 			Units produced and sold 			9,000 			8,000 			7,000 		 		 			Selling Price 			$45.00 			$30.00 			$25.00 		 		 			Less: 			 			 			 		 		 			 Direct materials per unit 			5.50 			4.25 			3.00 		 		 			 Direct labor cost per unit 			9.00 			2.00 			3.00 		 		 			 Manufacturing overhead per unit 			27.00 			6.00 			9.00 		 		 			Gross Margin 			3.50 			17.75 			10.00 		 		 			Less: 			 			 			 		 		 			 Selling cost per unit 			2.25 			1.50 			1.25 		 		 			 Administration cost per unit 			3.75 			3.00 			2.75 		 		 			Net Income (loss) per unit 			$(2.50) 			$13.25 			$6.00 		 	  The manager of Dawson Company is concerned that the Skyhawk game seems to be a net loser and he is considering whether to discontinue it. He has asked you to analyze the situation and make a recommendation. Your analysis reveals that Dawson Company has three levels of overhead – faculty sustaining, batch-related, and unit-related – and that the appropriate overhead rates are $6.00 per square foot, $1,000 per production run, and $4 per unit, respectively. Resource usage during the past period follows. In addition, you discover that administrative costs are fixed while selling costs are variable per unit. 	 		 			 			Skyhawk 			Seahawk 			Sharks 		 		 			Square feet occupied 			10,000 			12,500 			15,000 		 		 			Production runs 			9 			12 			12 		 	  Required: 	Determine whether Dawson Company should drop any game. 	Write a memo to the manager with your recommendation.

David · Accepted Answer

Part A. 
Calculation of manufacturing cost per unit using activity based costing
    
Faculty sustaining 
 $                                      
60,000  
 $                        
75,000  
 $                                   
90,000  
Batch related 
 $                                         
9,000  
 $                        
12,000  
 $                                   
12,000  
Unit related 
 $                                      
36,000  
 $                        
32,000  
 $                                   
28,000  
Total manufacturing 
overheads 
 $                                    
105,000  
 $                      
119,000  
 $                                 
130,000  
Units 9,000 8,000 7,000
   Manufacturing overhead per 
unit 
11.67 14.88 18.57
  Skyhawk Seahawk Sharks 
Units produced and sold 9,000 8,000 7,000 
Selling Price $45.

Critical Thinking Assignment Dawson Company manufactures three types of computer games: Skyhawk, Seahawk, and Sharks. It allocates overhead to the games based on the number of direct labor hours...

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Skyhawk	Seahawk	Sharks
Units produced and sold	9,000	8,000	7,000
Selling Price	$45.00	$30.00	$25.00
Less:
Direct materials per unit	5.50	4.25	3.00
Direct labor cost per unit	9.00	2.00	3.00
Manufacturing overhead per unit	27.00	6.00	9.00
Gross Margin	3.50	17.75	10.00
Less:
Selling cost per unit	2.25	1.50	1.25
Administration cost per unit	3.75	3.00	2.75
Net Income (loss) per unit	$(2.50)	$13.25	$6.00