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Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable

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Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,902,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,437,000 1,020,000 Commercial $ 517,500 565,000 Total $1,954,500 1,585,000 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows: Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Activity Level Costs Assigned Personal Commercial Total $900,000 50 25 75 780,000 15 25 40 222,000 150 50 200 $ 1,902,000

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