Maglie Company manufactures two video game consoles: handheld and home. The hand

Question

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 $1,338,000 based on production of 330,000 handheld consoles and 99,000 home consoles. Direct labor and direct materials costs were as follows:

Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows:

Required:

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? (Do not round intermediate calculations. Round "Total cost per unit" to 2 decimal places.)

Handheld Home Total Direct labor $ 1,287,500 $ 385,000 $ 1,672,500 Materials 710,000 706,000 1,416,000

Explanation / Answer

Overhead: Handheld 1030000 =1338000/1672500*1287500 Home 308000 =1338000/1672500*385000 Total Cost per Unit: Handheld 9.17 =(1287500+710000+1030000)/330000 Home 14.13 =(385000+706000+308000)/99000

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