Question

Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing.

Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,276,000 based on production of 320,000 handheld consoles and 115,000 home consoles. Direct labor and direct materials costs were as follows.

	Handheld			Home			Total
Direct labor	$	1,195,000		$	400,000		$	1,595,000
Materials		760,000			656,000			1,416,000

Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows.

				Activity Level
Cost Driver	Costs Assigned			Handheld	Home	Total
Number of production runs	$	550,000		35	15	50
Quality tests performed		558,000		13	18	31
Shipping orders processed		168,000		90	50	140
Total overhead	$	1,276,000

Required:

a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?

How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total Cost per Unit" to 2 decimal places.)

	Overhead Total Cost per Unit Handheld Home

b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product?

How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Do not round intermediate calculations. Round "Total cost per unit" to 2 decimal places.)

	Overhead Total Cost per Unit Handheld Home

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and calculation. For detailed answer refer to the supporting sheet.

1 4 ДА в Answer 2 Parta) 3 Firstly we have to calculate the overheads assigned to each product based on cost drivers Handheld Total overheads Cost Drivers Cost Total activity | Activity Rate Activity used assigned Production Units 550000 11000 35 385000 Quality tests 558000 31 18000 13 234000 Shipping orders 168000 140 1200 108000 1276000 727000 No. of units 320000 Overheads cost per unit 2.27 50 15 Home Total overheads Activity used assigned 165000 324000 60000 549000 115000 4.77 Calculation of Per Unit cost Particulars Handheld Direct Labour 1195000 Material 760000 Overheads 727000 Total cost 2682000 No. of units produced 320000 Cost Per Unit 8.38 Home 400000 656000 549000 1605000 115000 13.96 22 Thus the final asnswer Handheld Home Overheads 727000 549000 Total cost per unt 8.38 13.96

A 27 Part B) 28 Firstly we have to calculate the overhead rate based on direct labour cost 29 -overheads/ direct labour cost 30 = 1276000/1595000 31 = $0.8 per dollar direct labour cost Calculation of Per Unit cost Particulars Handheld Direct Labour 1195000 Material 760000 Overheads 956000 (1195000*.8) Total cost 2911000 No. of units produced 320000 Cost Per Unit 9.10 Home 400000 656000 320000 (400000*.8) 1376000 115000 11.97 10 13 Thus the final answer Handheld Home Overheads 956000 320000 Total cost per unt 9.10 11.97