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 1	Red	Yellow	Green	Total
Units produced and sold	6,000	11,000	21,000	38,000
Sales price per unit	$150	$100	$75
Direct materials cost per unit	$70	$50	$30
Direct labor-hours per unit	2	1	0.5
Wage rate per hour	$20	$20	$20
Total manufacturing overhead				$750,000

This year (year 2), the company only produced the Yellow and Green models. Total overhead was $650,000. 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 labor-hours.

Required:

a. 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.

b. Compute the product costs and gross margins (revenues less cost of goods sold) for the two remaining products and total gross profit (loss) for year 2.

c. Should Dolan Products drop Yellow for year 3?

Answer rating: 100% (QA)

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