Exercise 9-43 (Algo) Activity-Based versus Traditional Costing (LO 9-4,5,6) 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 $1,202,000 based on production of 280,000 handheld consoles and 95,000 home consoles Direct labor and direct materials costs were as follows ok Direct labor Materials Handheld $1,111,500 740,000 Home $391,000 675,000 Total $1,582,500 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 Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Costs Assigned $ 550,000 476,000 176,000 $1,202,000 Activity Level Handheld Home 45 5 12 16 110 50 Total 50 28 160 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 direct labor cost is used to allocate overhead? What is the total ost OF Exercise 9-45 (Algo) Activity-Based Costing in a Service Environment (LO 9-3,4,5) Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believes that the commercial sector has more growth opportunities and is considering dropping the residential service. Twenty employees worked a total of 34,000 hours last year, 23,000 on residential jobs and 11,000 on commercial jobs. Wages were $17 per hour for all work done. Any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor-hours worked, which is also the basis for customer charges. Because of increased competition for commercial accounts, EL&P can charge $34 per hour for residential work, but only $29 per hour for commercial work. Required: a. If overhead for the year was $122,700, what were the profits of the residential and commercial services using labor-hours as the allocation base? (Do not round Intermediate calculations. Round final answers to the nearest whole dollar.) b. Overhead consists of costs of traveling to the site, using equipment (including vehicle rental), and using supplies, which can be traced as follows Activity Traveling Using equipment Using supplies Total overhead Cost Driver Number of clients served Equipment hours Area serviced in square yards Cost $ 15,860 34,840 72,200 $122,700 Cost Driver Volume Commercial Residential 16 45 13,300 1,900 150,000 50,000 Recalculate profits for commercial and residential services based on these activity bases. (Do not round Intermediate calculations. Round final answers to the nearest whole dollar.) Commercial Residential a Revenue Direct Labor Overhead Profit Total Overhead Pront b. 55 PES MO Exercise 9-43 (Algo) Activity-Based versus Traditional Costing (LO 9-4,5,6) 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 $1,202,000 based on production of 280,000 handheld consoles and 95,000 home consoles Direct labor and direct materials costs were as follows ok Direct labor Materials Handheld $1,111,500 740,000 Home $391,000 675,000 Total $1,582,500 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 Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead Costs Assigned $ 550,000 476,000 176,000 $1,202,000 Activity Level Handheld Home 45 5 12 16 110 50 Total 50 28 160 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 direct labor cost is used to allocate overhead? What is the total ost OF Exercise 9-45 (Algo) Activity-Based Costing in a Service Environment (LO 9-3,4,5) Elite Lawn & Plowing (EL&P) is a lawn and snow plowing service with both residential and commercial clients. The owner believes that the commercial sector has more growth opportunities and is considering dropping the residential service. Twenty employees worked a total of 34,000 hours last year, 23,000 on residential jobs and 11,000 on commercial jobs. Wages were $17 per hour for all work done. Any materials used are included in overhead as supplies. All overhead is allocated on the basis of labor-hours worked, which is also the basis for customer charges. Because of increased competition for commercial accounts, EL&P can charge $34 per hour for residential work, but only $29 per hour for commercial work. Required: a. If overhead for the year was $122,700, what were the profits of the residential and commercial services using labor-hours as the allocation base? (Do not round Intermediate calculations. Round final answers to the nearest whole dollar.) b. Overhead consists of costs of traveling to the site, using equipment (including vehicle rental), and using supplies, which can be traced as follows Activity Traveling Using equipment Using supplies Total overhead Cost Driver Number of clients served Equipment hours Area serviced in square yards Cost $ 15,860 34,840 72,200 $122,700 Cost Driver Volume Commercial Residential 16 45 13,300 1,900 150,000 50,000 Recalculate profits for commercial and residential services based on these activity bases. (Do not round Intermediate calculations. Round final answers to the nearest whole dollar.) Commercial Residential a Revenue Direct Labor Overhead Profit Total Overhead Pront b. 55 PES MO