Period 3 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 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.
