The Acme Corporation manufactures a number of different kinds of sprinklers in three broad product lines. The following table provides relevant information about the product lines.

Currently, Acme incurs total overhead of $12,776,400 per year and allocates it to individual products using labor hours as the allocation basis.

Required:
a. Determine product profitability under the current method for allocating overhead costs.
b. Based on your answers to part (a), Acme€™s CEO wishes to expand the sales of estate sprinklers and deemphasize lawn sprinklers. However, because the firm€™s operating personnel seem cool to this idea, the CEO asks you to refine the product cost estimates and shore up her case. You find that $7,300,800 of the overhead is labor related, with the remainder relating to the number of batches run. How does this new information affect your estimates of productprofitability?

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Hand-Held 1,000,000 $9.00 2.00 2.2 hours Laun Spikes Eslate Sprinklers Units Price per unit Variable costs Labor hours/unit Batch size 2,000,000 $8.50 4.00 1.9 hours 40,000 $15.00 4.50 2.1 hours 1,000 units 10,000 units 5,000 units