Perdon Corporation manufactures safes—large mobile safes, and large walk-in stat
ID: 2415493 • Letter: P
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.
Q1.The total estimated manufacturing overhead was $262,400. Under traditional costing (which assigns overhead on the basis of direct labor hours), what amount of manufacturing overhead costs are assigned to: (Round intermediate calculations and answers to 2 decimal places, e.g. $12.25.)
(1). One mobile safe $
(2).One walk-in safe $
Q2.The total estimated manufacturing overhead of $262,400 was comprised of $165,900 for material handling costs and $96,500 for purchasing activity costs. Under activity-based costing (ABC): (Round intermediate calculations and answers to 2 decimal places, e.g. $12.25.)
(1).What amount of material handling costs are assigned to:
(a).One mobile safe $
(b).One walk-in safe $
(2).What amount of purchasing activity costs are assigned to:
(a).One mobile safe $
(b).One walk-in safe $
Q3.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 $ $
walk-in safe $ $
<Here is the chart.>!!!!plaese see your fomula!!!!
Mobile
Safes
Walk-In
Safes
Mobile
Safes
Walk-In
Safes
Explanation / Answer
Answer 1 The direct labor hours taken as the base for working out the overhead allocation per unit are : For Mobile Safes = 790 hours per product line For Walk-In Safes = 1700 hours per product line Total No. of direct labour hours = 2490 Thus, the manufacturing overheads assigned for 210 Mobile Safes = $ 262,400 X 790 / 2490 = 83251.406 $ 50 Walk-in Safes = $ 262,400 X 1700 / 2490 = 179148.59 $ Hence, the overhead allocation per safe by using the traditional costing method is Per Mobile Safe 396.44 $ Per Walk-in Safe 3582.97 $ Answer 2 We are working out the overhead allocation based on two concepts, the material handling and purchase orders Material Handling Costs per Safe No. of units Material Moves per product line Total Material Handling Costs $ Material Handling Costs for total units $ Material Handling Costs per unit $ Mobile Safe 210 310 91837.5 437.32 Walk-in Safe 50 250 74062.5 1481.25 560 165900 165900 Purchasing Activity Costs per Safe No. of units Purchase Orders per product line Total Purchasing Activity Costs $ Purchase Activity Costs for total units $ Purchase Activity Costs per unit $ Mobile Safe 210 450 53611.11 255.29 Walk-in Safe 50 360 42888.89 857.78 810 96500 96500 Answer 3 Overhead Allocation per Safe based on Traditional Costing and ABC Costing (All amounts in $) Traditional Costing Activity Based (ABC) Costing Overhead Allocation Per Mobile Safe 396.44 692.61 Per Walk-In Safe 3582.97 2339.03
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