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 $1,218,000 based on production of 290,000 handheld consoles and 86,000 home consoles. Direct labor and direct materials costs were as follows. Direct labor Materials Handheld $1,142,500 790,000 Home $380,000 676,000 Total $1,522,500 1,466,000 Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows. Costs Assigned Activity Level Handheld Home Total 35 10 45 14 90 15 17 31 50 140 Cost Driver Number of production runs Quality tests performed Shipping orders processed Total overhead $ 540,000 496,000 182,000 $1,218,000