Perdon Corporation manufactures safes-large mobile safes, and large walkin 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 on page 922 relates to overhead.
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Mobile
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Walk-in
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Safes
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Safes
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Units planned for production
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200
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50
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Material moves per product line
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300
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200
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Purchase orders per product line
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450
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350
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Direct labor hours per product line
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800
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1,700
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Instructions
(a) 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:
(1) One mobile safe?
(2) One walk-in safe?
(b) The total estimated manufacturing overhead of $260,000 was comprised of $160,000 for material-handling costs and $100,000 for purchasing activity costs. Under activitybased costing (ABC):
(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?
(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.