Chapter 4, Problem 4.5E

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	50
Material moves per product line	300	200
Purchase orders per product line	450	350
Direct labor hours per product line	800	1,700

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 materials handling costs and $100,000 for purchasing activity costs. Under activity-based costing (ABC):

(1) What amount of materials 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.