## Question

###### Exercise 9-43 (Algo) Activity-Based versus Traditional Costing (LO 9-4,5,6) Maglie Company manufactures two video game consoles:...

Exercise 9-43 (Algo) Activity-Based versus Traditional Costing (LO 9-4,5,6) 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 $1,477,000 based on production of 290,000 handheld consoles and 86,000 home consoles Direct labor and direct materials costs were as follows. Total Direct labor Materials Handheld Home $1,451,250 $395,000 7 10, 809691,000 $1,846,250 1,401,000 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 Handheld Home costs Asal Costs Assigned $ 715,000 Total Cost Oriver Number of production runs Quality tests performed Shipping orders processed Total overhead 160 192,000 51,472,000

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? 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 una produced for each product? Complete this question by entering your answers in the tabs below. Required A Required B 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? (Round "Total Cost per Unit" to 2 decimal places.) Overhead Total Cost per Unit Handheld Home Required B >

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 of direct labor cost is used to allocate overhead? What is the total cost per un produced for each product? Complete this question by entering your answers in the tabs below. Required A Required 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? (Do not round intermediate calculations. Round "Total cost per unit to 2 decimal places.) Overhead Total Cost per Unit Handheld Home < Required A Read

## Answers

Activity Rate = Overhead/Total Driver Cost Handheld Home Total Rate Number of production runs 715000 45 10 55 13000 Quality tests performed 570000 13 17 30 19000 Shipping orders processed 192000 110 50 160 1200 Total 1477000 Overhead Assigned = Rate*Driver consumed Handheld Home Number of production runs 585,000 130,000 Quality tests performed 247,000 323,000 Shipping orders processed 132,000 60,000 Total 964,000 513,000 Calculation of cost per unit Handheld Home Direct labor 1,451,250 395,000 Material 710,000 691,000 Overhead 964,000 513,000 Total cost 3,125,250 1,599,000 Number of units 290,000 86,000 Cost per unit 10.77672414 18.59302326 If Direct labor cost is used Handheld Home Direct labor 1,451,250 395,000 Material 710,000 691,000 Overhead1,161,000316,000Total cost 3,322,250 1,402,000 Number of units 290,000 86,000 Cost per unit 11.45603448 16.30232558

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