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Integrative Cases $6-73($Algo$)$ Product Costing, Cost Estimation, and Decision Making $($LO $6-1,2)$

I don't understand this. Last year $[$year $1],$ we decided to drop our highest$-$end Red model and only produce the Yellow and Green models, because the cost system indicated we were losing money on Red. Now, looking at the preliminary numbers, our profit is actually lower than last year and it looks like Yellow has become a money loser, even though our prices, volumes, and direct costs are the same. Can someone please explain this to me and maybe help me decide what to do next year?

Robert Dolan

President & CEO

Dolan Products

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.

$\backslash$table$[[$Year $1,$Red,Yellow,Green,Total$],[$Units produced and sold,$10,000,14,000,21,000,45,000],[$Sales price per unit,$$110,$$$115,$$$60,],[$Direct materials cost per unit,$$50,$$$40,$$$25,],[$Direct labor$-$hours per unit,$2,2,0\mathrm{.}2,$Y$],[$Wage rate per hour,$$15,$$$15,$$$15,$$$],[$Total manufacturing overhead,,,,$1,044,000$

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