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 $1,242,000 based on production of 320,000 handheld consoles and 113,000 home consoles. Direct labor and direct materials costs were as follows.

	Handheld			Home			Total
Direct labor	$	1,158,500		$	394,000		$	1,552,500
Materials		770,000			702,000			1,472,000