Exercise 17-5 (Part Level Submission) Perdon Corporation manufactures safes-larg

Question

Exercise 17-5 (Part Level Submission) 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 Material moves per product line Purchase orders per product line Direct labor hours per product line Mobile Safes 200 310 450 790 Walk-in Safes 48 240 350 1,710 (a) 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.) (1) One mobile safe s per unit (2) One walk-in safe per unit

Explanation / Answer

Manufacturing overhead is allocated based on the direct labour hours.

Manufacturing overhead = 264,000

Direct labour hours for mobile safes = 790

Direct labour hours for walk in safes = 1,710

Manufacturing overhead for mobile safe = 264,000 * 790 / 2,500(790+1,710) = 83,424

Manufacturing overhead for walk in safe = 264,000 * 1,710 / 2,500(790+1,710) = 180,576

1. One mobile safe = Manufactueing overhead / units planned for production

= 83,424 / 200 = 417.12 per unit

2. One walk in safe = Manufactueing overhead / units planned for production

= 180,576 / 48 = 3,762 per unit

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