W 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 $1,244,000 based on production of 310,000 handheld consoles and 96,000 home consoles. Direct labor and direct materials costs were as follows. Direct labor Materials Handheld $1,142,000 740,000 Home $413,000 680,000 Total $1,555,000 1,420,000 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 Number of production runs Quality tests performed Shipping orders processed Total overhead $ 550,000 Costs Assigned Handheld Home Total 35 15 50 540,000 12 18 30 154,000 90 50 140 $1,244,000