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. Units planned for production Material moves per product line Purchase orders per product line Direct labor hours per product line Mobile Safes 200 300 450 Walk-in Safes 50 200 350 1,700 800

Answer 1

Solution :

ABC Costing :

Total Purchasing Estimated OH     = $ 88,000

Overhead Allocated = (Total Purchasing OH / Total Purchases Orders) * Purchases orders in Product

Large Mobile Safe = [$ 88,000 / (450 + 350)] * 450 = $ 49,500

Walk in Safe = [$ 88,000 / (450 + 350)] * 350 = $ 38,500

(a) OH Allocated to One Mobile Safe = Purchasing OH Allocated to Mobile Safe / No. of Unit of Large Mobile Safe

                                                      = $ 49,500 / 200

= $ 247.50 per Unit

(b) OH Allocated to One Mobile Safe = Purchasing OH Allocated to Mobile Safe / No. of Unit of Walk in Mobile Safe

                                                      = $ 38,500 / 50

= $ 770.00 per Unit

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