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