$ Additional ABC Problems 1. Activity-Based versus Traditional Costing Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. Management believes that the accounting system is not accurately allocating costs to products and has asked you to investigate if there is a cost allocation problem. You find that manufacturing overhead costs are 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: Direct labor Direct materials Handheld $1,160,400 750,000 Home $439,600 684,000 Total $1,600,000 1,434,000 Management has determined that overhead costs are caused by three activities and have identified their cost drivers. These activities/cost drivers and their costs for last year are as follows: 40 Activities/Cost Driver Setup costs (# of production runs) Quality tests (# of tests performed) Shipping orders (# of orders) Total overhead Activity Level Activity Cost Handheld Home Total S 660,000 10 50 594,000 12 18 30 186,000 100 50 150 $1,440,000 Required a. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the per-unit cost for each product? b. How much overhead will be assigned to each product if the three activity cost drivers are used to allocate overhead? What is the per-unit cost for each product? c. Comment on the results of the activity-based costing in requirement (b)