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 $1,254,000 based on production of 350,000 handheld consoles and 107,000 home consoles. Direct labor and direct materials costs were as follows:

	Handheld	Home	Total
Direct labor	$1,158,500	$ 409,000	$1,567,500
Direct materials	800,000	657,000	1,457,000

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:	Cost Assigned	Handheld	Home	Total
Number of production runs	$ 540,000	35	10	45
Quality tests performed	522,000	13	16	29
Shipping orders processed	192,000	110	50	160
Total overhead	$1,254,000

Required:

a. What is the traditional overhead application rate?

b. What is the cost per unit of Handheld under the conventional method?

c. what is the cost per unit of Home under the conventional method?

d. Using Activity-Based Costing system, what is the activity rate of production runs?

e. Using Activity-Based Costing system, what is the activity rate of quality tests?

f. Using Activity-Based Costing system, what is the activity rate of shipping orders?

g. What is the cost per unit of Handheld using Activity-Based Costing?

h. What is the cost per unit of Home using Activity-Based Costing?

i. Which costing method is allowed for use in the preparation of financial statements?