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 Material moves per product line 290 300 Purchase orders per product line 450 360 Direct labor hours per product line 810 1,690 The total estimated manufacturing overhead was $280,000. 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

Answer 1

Overhead per hour Estimated overheads/Estimated hours

= 280000/(810+1690)

= $112 per hour

One Mobile safe = 112*810/190 = $477.47 per unit

One walk in safe = 112*1690/51 = $3711.37 per unit

Handling cost

Mobile Safe = (170000*290/590)/190 = $439.79 per unit

Walk in = (170,000*300/590)/51 = $1694.92 per unit

Purchase activity

Mobile = (110000*450/810)/190 = 321.64 per unit

Walk in = (110000*360/810)/51 = $958.61 per unit

	Traditional	ABC
Mobile Safe	477.47	761.43
Walk-in Safe	3711.37	2653.53