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		40
Material moves per product line		290		190
Purchase orders per product line		440		340
Direct labor hours per product line		790		1,690

(a)

Correct answer iconYour answer is correct.

The total estimated manufacturing overhead was $260,000. 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		$	per unit
(2)		One walk-in safe		$	per unit

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Solution

Attempts: 5 of 5 used

(b1)

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The total estimated manufacturing overhead of $260,000 was comprised of $160,000 for materials handling costs and $100,000 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		$	per unit
(b)		One walk-in safe		$	per unit

Answer 1

(a) Manufacturing overhead cost using traditional approach :-

One mobile safe = (260,000/2,480) x 790 = $82,822.58

Per unit = 82,822.58/190 = $435.91

One walk in safe = (260,000/2,480) x 1,690 = $177,177.42

Per unit = 177,177.42/40 = $4,429.44

(b1) Material handling cost :-

One mobile safe = (160,000/(190+290)) x 290 = $96,666.67

Per unit = 96,666.67/190 = $508.77

One walk in safe = (160,000/480) x 190 = $63,333.33

Per unit = 63,333.33/40 = $1,583.33