Determine whether Dawson Company should drop any game.Write a memo to the manager with your recommendation.

Determine whether Dawson Company should drop any game.Write a memo to the manager with your recommendation.

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 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:

A. Determine whether Dawson
Company should drop any game.

B. Write a memo to the manager with your recommendation

Price: £ 45

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