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		48
Material moves per product line		310		240
Purchase orders per product line		450		350
Direct labor hours per product line		790		1,710

The total estimated manufacturing overhead was $264,000. 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.)

The total estimated manufacturing overhead of $264,000 was comprised of $174,000 for materials handling costs and $90,000 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 $264,000 was comprised of $174,000 for materials handling costs and $90,000 for purchasing activity costs. Under activity-based costing (ABC): (Round answers to 2 decimal places, e.g. 12.25.)

What amount of purchasing activity 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.)

		Traditional Costing		Activity-Based Costing
Mobile safe		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places
Walk-in safe		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places

Answer 1

a)
	traditional costing
	264,000/(790+1710)
	105.60
	one mobile safe
	(105.6*790)/200
	417.12	per unit
	one walk in safe
	(105.6*1710)/48
	3762.00	per unit
	one mobile safe			417.12
	one walk in safe			3762.00
b)	Activity based
	Materials handling
	(174000)/(310+240)
	316.3636
	one mobile safe
	(316.3636*310)/200
	490.36	per unit
	one walk in safe
	(316.3636*240)/48
	1581.82	per unit
	one mobile safe			490.36
	one walk in safe			1581.82
b-2)	Activity based
	purchasing activity
	(90000)/(450+350)
	112.5
	one mobile safe
	(112.5*450)/200
	253.13	per unit
	one walk in safe
	(112.5*350)/48
	820.31	per unit
	one mobile safe			253.13
	one walk in safe			820.31
c)				Tradition	ABC
	one mobile safe			417.12	743.49
	one walk in safe			3762.00	2402.13