Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less
Question:
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. 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?
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?
c. How might the results from using activity-based costing in requirement (a) help management understand Maglie's declining profits?
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Related Book For
Fundamentals of Cost Accounting
ISBN: 978-1259565403
5th edition
Authors: William Lanen, Shannon Anderson, Michael Maher
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