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 210 310 450 810 Walk-in Safes 51 250 340 1,710

Explanation / Answer

Under Traditional costing

Calculation of overhead cost per direct labor

Total overhead/total direct labour

Total overhead=276000

Total Direct labour=[210*810]+[51*1710]=257310

overhead cost per direct labour=276000/257310=1.07

mobile safe= 422.45*1.07=452.02

walk-in safe= 3672.27*1.07=3929.33

Under Activity Based Costing

Overhead cost/No of units

Mobile Safe = 429.68

Walk-in Safe= 1426.82

Traditional Costing Activity Based Costing Mobile Safe 452.02 429.68 Walk- in Safe 3929.33 1426.82

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