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.

Units planned for production

Mobile Sales:200 Walk-in Sales:50

Material moves per product line

Mobile Sales: 300 Walk-in Sales200

Purchase orders per product line

Mobile Sales:450 Walk-in Sales:350

Direct labor hours per product line

Mobile Sales: 800 Walk-in Sales:1,710

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):

a) What amount of manufacturing overhead cost is assigned to Mobile Safe Walk-in Sale

b) What amount of material handling costs are assigned to One Mobile Safe One Walk-in Sale

c) Compare the amount of overhead allocated to one mobile safe and to one walk-in safe under the traditional costing approach versus under ABC: Mobile Safe Walk-in Sale

Perdon Corporation manufactures safes-arge 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 300 200 Purchase orders per product line 450 350 Direct labor hours per product line BOO 1,700 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.) a) (1) One mobile sale $ per unit (2) One walk in sale per unit LINE TO TEXT LINK TO VIDEO b) The total estimated manufacturing overhead of $260,000 was comprised of $160,000 for materials handing 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 sates per unit (b) One walk-in sale per unit 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, eg, 12.25.) Traditional Casting Activity Based Costing Mobile sale c) Walk-in sale Click if you would like to Show Work for this question: On Show Work

Answer 1

$ Solution a) Total Manufacturing OH Total Direct Labor hours ( 800 + 1700 ) Cost per Direct labor hour (a) (b) (a/b) 2,60,000 2500 104 per hour $ Allocation per unit: Direct labor hours Allocated cost @ $104 per hr Number of Units Cost oer unit (a) (b) Mobile Safes Walk-in Sales 800 1700 $ 83,200 $ 1,76,800 200 50 $ 416.00 $ 3,536.00 1) One Mobile Safe 2) One walk in Safe $ $ 416.00 per unit 3,536.00 per unit Solution b) Activity Cost Pools Estimated Overhead Estimated use of Cost Drivers per Activity # of material 500 moves # of purchase 800 orders Activity Based Overhead Rates per material $ 320.00 move per purchase $ 125.00 orders Material Handling $ 1,60,000 Purchasing Activity costs $ 1,00,000 $ 2,60,000

Mobile Sales Walk-In sales Activity Based Estimated use of cost Overhead Cost driver per product Rates Assigned 200 $ 320.00 $ 64,000 Activity Based Activity Cost Estimated use of cost driver Overhead Pools per product Rates Cost Assigned Material Handling 300 $ 320.00 $ 96,000 Purchasing Activity costs 450 $ 125.00 $ 56,250 Allocted Cost (a) $ 1,52,250 Number of Units (b) 200 Cost per unit (a/b) $ 761.25 350 $ 125.00 $ 43,750 $ 1,07,750 50 $ 2,155.00 1) One Mobile Safe 2) One walk in Safe $ $ 761.25 per unit 2,155.00 per unit Solution c) Traditional Activity based Costing Costing $ 416.00 $ 761.25 $ 3,536.00 $ 2,155.00 Mobile Safe Walk-In Safe

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