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?

 

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 $1,311,000 based on production of 280,000 handheld consoles and 120,000 home consoles. Direct labor and direct materials costs were as follows. Direct labor Materials Handheld $1,261,750 710,000 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 Home $377,000 Total $1,638,750 671,000 1,381,000 Quality tests performed Shipping orders processed Total overhead Costs Assigned $ 585,000 558,000 168,000 $1,311,000 Activity Level Handheld 30 14 100 Home 8550 15 17 40 Total 45 31 140