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 form last year. Manufacturing overhead was $1,432,000 based on production of 290,000 handheld consoles and 108,000 home consoles. Direct labor and direct materials costs were as follows. Handheld Home Total Direct labor $1,389,000 $401,000 $1,790,000 Materials 760,000 655,000 1,415,000 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 productions runs $780,000 50 10 60 Quality tests performed 496,000 13 18 31 Shipping orders processed 156,000 90 40 130 Total overhead $1,432,000 Required: 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.)
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
Handheld Home Total
Direct labor $1,389,000 $401,000 $1,790,000
Materials 760,000 655,000 1,415,000
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 productions runs $780,000 50 10 60
Quality tests performed 496,000 13 18 31
Shipping orders processed 156,000 90 40 130
Total overhead $1,432,000
Required:
- 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 __________ ________________
- 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 ___________ _________________
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