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 Material moves per product line Purchase orders per product line 350 1.700 Direct labor hours per product line ✓ Your answer is correct The total estimated manufacturing overhead was $272,000. 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, eg. 12.25.) 435.20 per unit (1) One mobile safe (2) One walk-in safe $ $ 3699.20 per unit Attempts: 1 of 7 used (61) The total estimated manufacturing overhead of $272.000 was comprised of $164,000 for materials handling costs and $108.000 for purchasing activity costs. Under activity-based costing (ABC): (Round answers to 2 decimal places, eg. 12.25.) What amount of materials handling costs are assigned to: (a) One mobile safe $ per unit (b) One walk-in safe $ per unit

Answer 1

(a) One moblie safe [Refer working note 1]	$492.00	per unit
(b) One walk-in safe [Refer working note 1]	$1,312.00	per unit

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Working note 1 - Computation of amount of material handing costs assigned:
	Mobile Safes	Walk-in Safes
Material handling Overhead allocated        [Refer working note 2]       (a)	$98,400.00	$65,600.00
Production ( In units)                                                                                 (b)	200	50
Overhead cost per unit                                                                         (a / b)	$492.00	$1,312.00

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Working note 2 - Allocation of Overhead to both the products using activity rates:
Activity cost pool	Activity Rate [Refer working note 3]		Mobile Safes			Walk-in Safes
			Activity usage		Allocation of overhead	Activity usage		Allocation of overhead
	(a)		(b)		(a x b)	(c)		(a x c)
Material-handling costs	$328.00	Per material move	300	material moves	$98,400.00	200	material moves	$65,600.00
Purchasing activity costs	$135.00	Per purchase order	450	purchase orders	$60,750.00	350	purchase orders	$47,250.00

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Working note 1 - Calculation of Activity rate
Activity	Activity costs (a)	Activity (b)		Activity rate (a / b)
Material-handling costs	$164,000	500	material moves	$328.00	Per material move
Purchasing activity costs	$108,000	800	purchase orders	$135.00	Per purchase order