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 $1,428,000 based on production of 280,000 handheld consoles and 117,000 home consoles. Direct labor and direct materials costs were as follows. Direct labor Materials Handheld $1,391,eee 730,888 Home $394,eee 684,000 Total $1,785,800 1,414,000 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows. Total Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead be Activity Level Handheld Home 45 15 10 90 Costs Assigned $ 840,000 448,00 140,000 $1,428,eee 140 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? b. How much overhead will be assigned to each product of direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? Complete this question by entering your answers in the tabs below. Required A Required B 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 (Required A Required B >

Answer 1

a) Calculate following

	Handheld	Home
Production runs	630000	210000
Quality test performed	160000	288000
Shipping order	90000	50000
Total overhead	880000	548000
direct material	730000	684000
Direct labor	1391000	394000
Total Cost	3001000	1626000
Unit	280000	117000
Cost per unit	10.72	13.90

b) Calculate following

	Handheld	Home
Total overhead	1112800	315200
direct material	730000	684000
Direct labor	1391000	394000
Total Cost	3233800	1393200
Unit	280000	117000
Cost per unit	11.55	11.91