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
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 Costs 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:
How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product?