Question

Perdon Corporation manufactures safes—large mobile safes, and large walk-in stationary bank safes. As part of its annual budgeting process, Perdon is analyzing the profitability of its two products. Part of this analysis involves estimating the amount of overhead to be allocated to each product line. The information shown below relates to overhead. Mobile Safes Walk-in Safes Units planned for production 190 53 Material moves per product line 290 310 Purchase orders per product line 450 340 Direct labor hours per product line 810 1,700 The total estimated manufacturing overhead was $278,000. Under traditional costing (which assigns overhead on the basis of direct labor hours), what amount of manufacturing overhead costs are assigned to: (Round answers to 2 decimal places, e.g. 12.25.) (1) One mobile safe $enter a dollar amount per unit rounded to 2 decimal places per unit (2) One walk-in safe $enter a dollar amount per unit rounded to 2 decimal places per unit

The total estimated manufacturing overhead of $278,000 was comprised of $169,000 for materials handling costs and $109,000 for purchasing activity costs. Under activity-based costing (ABC): (Round answers to 2 decimal places, e.g. 12.25.)

What amount of materials handling costs are assigned to:

(a)		One mobile safe		$enter a dollar amount per unit rounded to 2 decimal places	per unit
(b)		One walk-in safe		$enter a dollar amount per unit rounded to 2 decimal places	per unit

eTextbook and Media

  

  

The total estimated manufacturing overhead of $278,000 was comprised of $169,000 for materials handling costs and $109,000 for purchasing activity costs. Under activity-based costing (ABC): (Round answers to 2 decimal places, e.g. 12.25.)

What amount of materials handling costs are assigned to:

(a)		One mobile safe		$enter a dollar amount per unit rounded to 2 decimal places	per unit
(b)		One walk-in safe		$enter a dollar amount per unit rounded to 2 decimal places	per unit

eTextbook and Media

  

  

Compare the amount of overhead allocated to one mobile safe and to one walk-in safe under the traditional costing approach versus under ABC. (Round answers to 2 decimal places, e.g. 12.25.)

Answer 1

	Mobile Safes	Walk-in safes	Total	Associated Man OH	Activity rate
Planned production	190	53	243
Material moves	290	310	600	169000	$       281.67
Purchase orders	450	340	790	109000	$       137.97
D.Lab hours	810	1700	2510

1) Allocation of Manufacturing OH on traditional costing (on Labour hours)
Man OH	$                    2,78,000
Total Lab hours	2510
Man OH per Lab hour	$                       110.76
	Mobile Safes	Walk-in safes
D.Lab hours	810	1700
Man OH per Lab hour	$                       110.76	$                          110.76
Total Man OH	$                 89,713.15	$                  1,88,286.85
Planned production	190	53
Man OH per Unit	$                       472.17	$                       3,552.58
2) Allocation of Manufacturing OH on traditional costing (on Activity based costing approach)
	Mobile Safes	Walk-in safes	Total
Material moves	290	310
Activity rate	$                       281.67	$                          281.67
Material handling costs	$                 81,683.33	$                     87,316.67	$ 1,69,000.00
Purchase orders	450	340
Activity rate	$                       137.97	$                          137.97
Purchase ordering cost	$                 62,088.61	$                     46,911.39	$ 1,09,000.00
	Mobile Safes	Walk-in safes
Material handling costs	$                 81,683.33	$                     87,316.67
Purchase ordering cost	$                 62,088.61	$                     46,911.39
Total Man OH	$              1,43,771.94	$                  1,34,228.06
Planned production	190	53
Man OH per Unit	$                       756.69	$                       2,532.60

	Allocation of Man OH (Per unit)
	Traditional costing method	Activity based costing method
Mobile Safes	$                                472.17	$                                       756.69
Walk in safes	$                             3,552.58	$                                    2,532.60

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