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Perdon Corporation

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E4-6 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 costingInstructions
(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 activity based
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.

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