R17.pdf - Maglie Company manufactures two video game...

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 $1,440,000 based
on production of 28,000 handheld consoles and 10,000 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
a.