Exercise 4-5

Perdon Corporation manufactures safeslarge 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		40
Material moves per product line		310		300
Purchase orders per product line		460		360
Direct labor hours per product line		790		1,690

The total estimated manufacturing overhead was $269,000. 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		$	per unit
(2)		One walk-in safe		$	per unit

The total estimated manufacturing overhead of $269,000 was comprised of $163,000 for materials handling costs and $106,000 for purchasing activity costs. Under activity-based costing (ABC): (Round answers to 2 decimal places, e.g. 12.25.) What amount of materials handling costs are assigned to:

(a)

One mobile safe

$

per unit

(b)

One walk-in safe

$

per unit

The total estimated manufacturing overhead of $269,000 was comprised of $163,000 for materials handling costs and $106,000 for purchasing activity costs. Under activity-based costing (ABC): (Round answers to 2 decimal places, e.g. 12.25.) What amount of purchasing activity costs are assigned to:

(a)

One mobile safe

$

per unit

(b)

One walk-in safe

$

per unit

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		$		$