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		51
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		$enter a dollar amount per unit rounded to 2 decimal places	per unit
(2)		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 $280,000 was comprised of $170,000 for materials handling costs and $110,000 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 $280,000 was comprised of $170,000 for materials handling costs and $110,000 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

Part 1
	Mobile Safes	Walk-in Safes	Total
Units Planned for production	190	51	241	units
Material moves	290	300	590	moves
Purchase order	450	360	810	orders
Direct labor hours	810	1690	2500	direct labor hours
Overhead rate per direct labor hours =$280,000 / 2,500 hours =$112 per direct labor hours
	Mobile Safes	Walk-in Safes
Direct labor hours	810	1690
Manufacturing cost allocated	$                                90,720	$                                  189,280
Units Planned for production	190	51
Manufacturing cost per unit	$                                477.47	$                                 3,711.37
Part 2
	Mobile Safes	Walk-in Safes	Total
Units Planned for production	190	51	241	units
Material moves	290	300	590	moves
Purchase order	450	360	810	orders
Direct labor hours	810	1690	2500	direct labor hours
Material Handling cost per move =$170,000 / 590 moves =$288.13559322 per material move
Purchasing activity cost per order =$110,000 / 810 =$135.80246914 per order
	Mobile Safes	Walk-in Safes	Total
Material moves	290	300	590
Material Handling cost per move	$                    288.13559322	$                        288.13559322
Material Handling cost	$                           83,559.32	$                               86,440.68	$                                170,000.00
Material Handling cost per unit	$                                439.79	$                                 1,694.92
Purchase order	450	360
Purchasing activity cost per order	$                    135.80246914	$                        135.80246914
Purchasing activity cost	$                           61,111.11	$                               48,888.89	$                                110,000.00
Purchasing activity cost per unit	$                                321.64	$                                    958.61
	Traditional Costing	Activity-Based Costing
Mobile Safe	$                                477.47	$                                    761.42
Walk-in Safe	$                             3,711.37	$                                 2,653.52