70.2K

Verified Solution

Link Copied!

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 $1,405,000 based on production of 320,000 handheld consoles and 97,000 home consoles. Direct labor and direct materials costs were as follows.

Handheld Home Total

Direct labor $1,340,250 $416,000 $1,756,250

Materials 710,000 680,000 1,390,000

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 $605,000 45 10 55

Quality tests performed $620,000 12 19 31

Shipping orders processed $180,000 90 60 150

Total overhead $1,405,000

How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? Put the overhead answer for both Handheld and Home.

Answer & Explanation Solved by verified expert

See Answer