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 $1,440,000 based on production of 28,000 handheld consoles and 10,000 home consoles. Direct labor and direct materials costs were as follows. Handheld $1,160,400 750,000 Total $1,600,000 1,434,000 Home Direct labor Materials $439,600 684,000 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 Handheld Costs Assigned $ 660,000 594,000 186,000 Cost Driver Home Total Number of production runs Quality tests performed Shipping orders processed 40 12 10 50 30 18 100 50 150 Total overhead $1,440,000
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 $1,440,000 based on production of 28,000 handheld consoles and 10,000 home consoles. Direct labor and direct materials costs were as follows. Handheld $1,160,400 750,000 Total $1,600,000 1,434,000 Home Direct labor Materials $439,600 684,000 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 Handheld Costs Assigned $ 660,000 594,000 186,000 Cost Driver Home Total Number of production runs Quality tests performed Shipping orders processed 40 12 10 50 30 18 100 50 150 Total overhead $1,440,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
$1,440,000 based on production of 28,000 handheld consoles and 10,000 home consoles. Direct labor and direct materials costs
were as follows.
Handheld
Home
Total
Direct labor
Materials
$1,160,400
750,000
$439,600
684,000
$1,600,000
1,434,000
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
Handheld
Costs Assigned
$ 660,000
594,000
186,000
$1,440,000
Cost Driver
Home
Total
Number of production runs
Quality tests performed
Shipping orders processed
40
12
100
10
18
50
30
50
150
Total overhead
Transcribed Image Text: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 if 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.)
Total Cost
Overhead
per Unit
Handheld
Home
Required A
Required B
>
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