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 200 50 Material moves per product line 300 Purchase orders per product line 450 Direct labor hours per product line 200 350 1.700 800

Answer 1

Solution:

Calculating estimated total purchase orders:

Estimated total purchase orders = Orders for mobile safe+ order for walk in safe

=450 orders +350 orders

=800 orders

Overhead rate per order :

Overhead rate per order = Estimated manufacturing overhead cost / Estimated total no. of orders

=$108,000/800 orders

=$135 per order

Calculation of overhead rate per unit of each product line:

	Mobile safe	Walk in safe
Purchase orders for each product line (a)	450	350
Overhead rate per order (b)	$135	$135
Total allocated overhead to each product line (c= a*b)	$60,750	$47,250
No of units planned for production (d)	200	50
Overhead rate per unit (c/d)	$303.75	$945

Mobile safe	$303.75 per unit
Walk in safe	$945 per unit

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